Christian Magoon: Gold ETF products that are leveraged offer investors and traders unique benefits including convenience, low cost hedging and increased volatility. On Friday gold ETF shares in DUST and NUGT are showcasing these benefits mentioned. The two ETFs are battling it out as markets push and pull gold stocks. Both ETFs leverage their target index returns by 300% on a daily basis. DUST is the Direxion Daily Gold Miners Bull 3X ETF and contains over $340 million in assets. NUGT is the Direxion Daily Gold Miners Bear 3X ETF and it contains a scant $46 million in assets which is likely due to the rally gold stocks have experienced over the last few months.
Through mid day trading on Friday these ETFs are fighting it out as leadership continues to change hands. Here’s the intra day Google Finance chart showing (NYSEARCA:DUST) versus (NYSEARCA:NUGT).
Both gold ETF products showed their volatility in Friday’s trading action.
As the chart illustrates the leveraged gold ETF products appear to be heading in opposite directions for at least the fifth time in the trading session. Both these ETFs track the NYSE ARCA gold miners index, but take the opposite approach by delivering +300% or -300% of the daily return of the index (bull vs. bear).
COMMON LEVERAGED GOLD ETF USES
Leveraged gold ETF and ETN products are often used as a hedge by investors to protect the value of another position. The leverage within the products allows the investor to commit less money to this hedge. Besides hedging uses, leveraged ETFs are predictably popular with traders who seek maximum price movement in the positions they are trading. And for both types of market participants, leveraged gold ETFs offer convenient access and stock like liquidity.
LEVERAGED GOLD ETF & ETN LIST
There are a variety of leveraged gold ETF and ETN products listed in the U.S. and available to investors. DUST and NUGT are unique as they are the only leveraged gold stock ETFs in the marketplace. In fact the majority of the other leveraged products focus on delivering magnified returns based on gold prices, not stocks. Here’s a snapshot of the leveraged gold ETF list from GoldETFs.biz. It is sorted by year to date returns as of October 4, 2012.
Gold ETF investors have a lot of leveraged options to select form.
In general it is always important to read the prospectus before considering any investment, but this is especially true with leveraged gold ETF or ETN products. The majority of these products do not function intuitively and require a level of understanding usually found with experienced investors. Remember these ETFs are generally designed to produce the DAILY leveraged return of the index they track. Accordingly the recommended holding period for a leveraged gold ETF or ETN is usually one day or less.
Christian Magoon is Publisher of GoldETFs.biz and IndiaETFs.com. He is also CEO of Magoon Capital, a strategic consultant firm to asset managers. Christian Magoon is an ETF insider, having launched over 40 ETFs in the United States to date. A widely recognized thought leader on finance and market issues, Christian regularly contributes to many financial media outlets. Prior to forming Magoon Capital in 2010, Christian was President of Claymore Securities (now Guggenheim Investments), where he built one of the fastest growing and most innovative ETF businesses in the country, gathering more than $3 billion in AUM in three years. He launched more than 40 ETFs, introducing many “firsts” to the U.S. market, including the first Frontier Markets, Sector Rotation, Solar Energy, Timber, BRIC and suite of China focused ETFs. Christian consistently provides his industry insights and knowledge as a commentator in the U.S. media speaking publicly on macro investment issues and ETF related topics. Follow him on Twitter @ChristianMagoon. In 2008, he was named by Institutional Investor News as one of the five people to watch in the U.S. ETF marketplace. In 2011,Financial Planning magazine dubbed Christian an “ETF Pioneer.”