Thanks to the recent commodity strength, precious metals have
rebounded from their lows and even moved higher. In fact, precious
metals surged double digits from their three-year lows reached in
late June. This incredible performance was mainly driven by
improving global economic conditions.
The latest report from China shows that economic growth is now
picking up after slowing down in the first half of the year while
the euro zone finally emerged out of its six-quarter long recession
in the second quarter (read: 4 Outperforming ETFs Leading Europe
Higher). The U.S. is also growing at a faster clip with upbeat
manufacturing data and an improving labor market.
Meanwhile, lower chances of the Fed tapering its monetary stimulus
sometime soon and rising U.S.-Syria political tensions has led to a
decline in the dollar that is boosting demand for the metals. Amid
this uncertainty, the safe haven appeal for the precious metal has
once again emerged leading to huge inflows into the space.
This trend is expected to continue at least in the near term. As a
result, investors who are bullish on precious metals right now may
want to consider going long on them. Fortunately, ETFs offer
several options to investors to accomplish this task.
Below, we highlight a few of our favorite leveraged funds and some
of the key differences between each (see: all the leverage
commodity ETFs here).
Gold
Gold surged nearly 20% from its June low thanks to increased demand
for jewelry, coins and bars. According to the latest data from the
World Gold Council, the global demand for gold surged 53% in the
second quarter, particularly from the top two consumers – India and
China.
Further, the rising political instability in the Middle East
(Syria) as well as fresh concerns on U.S. government debt of late
has added bullishness to gold bullion. Investors looking to play
this optimism in the yellow metal could choose from the following
three leveraged ETFs:
ProShares Ultra Gold ETF
(UGL)
This fund seeks to deliver twice (2x or 200%) the return of the
daily performance of gold bullion in U.S. dollars; the gold price
is fixed for delivery in London. The product makes a profit when
the gold market moves upward and is suitable for short term
traders in the space (read: Gold Mining ETF Investing
101).
The product is expensive when compared to other geared options in
the space though, charging 95 bps in fees a year. However, it is
rich in AUM and average daily volumes with $192.9 million and
roughly 211,000 shares, respectively.
PowerShares DB Gold Double Long ETN
(DGP)
This ETN seeks to deliver twice (2x or 200%) the return of the
daily performance of the DBIQ Optimum Yield Gold Index Excess
Return, before fees and expenses. DGP initiates a long position in
the gold futures market and has a relatively tight bid/ask spread
with an average volume of roughly 332,000 shares per day.
The product charges 75 bps in fees per year from investors and has
amassed over $230 million in its asset base, making it a relatively
popular fund (read: 3 Metal ETFs to Buy on the Commodity
Upswing).
VelocityShares 3x Long Gold ETN
(UGLD)
This product provides three times (3x or 300%) exposure to the
daily performance of the S&P GSCI Gold Index Excess Return plus
returns from U.S. T-bills net of fees and expenses. The ETN has
been able to amass an asset base of only $37 million.
Though the note is the high cost choice in the gold bullion space,
charging 135 bps in fees per year, its moderate average daily
volume of nearly 185,000 shares ensures relatively narrow bid/ask
spreads.
Silver
Silver is outperforming gold by wide margins, reflecting a bullish
sign for the metal. In fact, the white metal climbed 27% from its
multi-year lows reached in late June.
Silver bullion is not only benefiting from being a precious metal
and a store of wealth, but also from the uptick in industrial
activities and the consequent improvement in the global economic
sentiments.
Unlike gold, silver is used in a wide range of industrial
applications and about 50% of the metal’s total demand comes from
those. Another 30% comes from jewelry, silverware, coins and medal
manufacturers (read: Silver ETFs Surge on Solid Industrial
Demand).
Investors could focus on these two leveraged silver ETFs in order
to tap the growing bullion space.
ProShares Ultra Silver ETF
(AGQ)
This fund seeks to deliver twice (2x or 200%) the return of the
daily performance of silver bullion in U.S. dollars; the silver
price is fixed for delivery in London. The product has gained
popularity as indicated by its AUM of $664.7 million and average
daily volume of more than 1.8 million shares while it charges 95
basis points a year in fees.
VelocityShares 3x Long Silver ETN
(USLV)
This product provides three times (3x or 300%) exposure to the
daily performance of the S&P GSCI Silver Index Excess Return
plus returns from U.S. T-bills net of fees and expenses. The ETN
has $180.1 million in AUM and trades in average daily volume of 1.5
million shares, ensuring little extra cost beyond the expense
ratio of 1.65% (read: 5 Silver ETFs Surging on Commodity
Strength).
Platinum
Platinum has risen 14% over the past two months on the back of
worries over the potential supply disruption in South Africa and
hopes of strong demand from Europe (read: Platinum ETF in Focus on
More South Africa Worries).
Investors have only one way to play the platinum using
VelocityShares 2x Long Platinum ETN
(LPLT) in the leveraged
world. This ETN provides investors exposure to two times (2x or
200%) the daily performance of the S&P GSCI Platinum Index
Excess Return plus returns from U.S. T-bills, less fees and
expenses.
The product is unpopular having amassed just $3 million in its
asset base since its launch and illiquid trading in paltry volume
of under 2,000 shares per day on average. The note charges 1.35% in
fees and expenses.
Bottom Line
Investors should note that since these products are extremely
volatile, these are suitable only for traders and those with a high
risk tolerance. Additionally, the daily rebalancing—when combined
with leverage—may make these products deviate significantly from
the expected long-term performance figures (see more in the Zacks
ETF Center).
Still, for ETF investors who are bullish on precious metal in the
near term, any of the above products could make for interesting
choices. Clearly, many are cycling their exposure in the precious
metal space, so a short-term long bet could be intriguing for
aggressive investors in this corner of the investing
world.
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PRO-ULT SILVER (AGQ): ETF Research Reports
PWRSH-DB GD 2XL (DGP): ETF Research Reports
SPDR-GOLD TRUST (GLD): ETF Research Reports
VEL-2X LNG PLAT (LPLT): ETF Research Reports
ISHARS-SLVR TR (SLV): ETF Research Reports
PRO-ULT GOLD (UGL): ETF Research Reports
VEL-3X LNG GOLD (UGLD): ETF Research Reports
VEL-3X LNG SLVR (USLV): ETF Research Reports
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