Gold Rally to Continue: Leveraged ETFs to Make Profits
Gold has been touching a series of record highs, with the bullion approaching the $2,850 level amid the rush to safe-haven demand. In particular, trade war fears and inflation concerns are currently driving the yellow metal higher, with many analysts expecting more upside in the near term. Additionally, strong gold buying from the world’s central banks and lower rates are supporting the gold price (read: Gold ETFs Soar to New Highs on Tariff Turmoil: What's Ahead?).Investors seeking to tap the bullish trends in gold may want to consider a near-term long on the precious metal. Fortunately, with the advent of ETFs, there are several options in the leveraged gold and gold mining space to make quick profits, as these could see huge gains in a very short time frame compared to simple products.These include ProShares Ultra Gold ETF UGL, DB Gold Double Long ETN DGP, Direxion Daily Gold Miners Index Bull 2X Shares NUGT, Direxion Daily Junior Gold Miners Index Bull 2x Shares JNUG and MicroSectors Gold Miners 3X Leveraged ETN GDXU.Here, we have discussed the reasons:Trade War FearsTensions between the United States and China escalated after the United States implemented a 10% tariff on Chinese imports on Feb. 4. In response, China retaliated with tariffs on U.S. products, including a 15% levy on coal and liquefied natural gas (LNG) and a 10% tariff on crude oil, agricultural machinery and automobiles effective Feb. 10 (read: Trade War Heats Up: ETFs to Shield Your Portfolio).Meanwhile, U.S. tensions with the European Union (EU) have also increased. Trump said that tariffs on the EU would be imposed “soon” as it does not take American cars and farm products. In fact, it takes almost nothing while the “US buys millions of cars, tremendous amounts of food and farm products.” Trump has also slapped 25% tariffs on Canada and Mexico but postponed it for 30 days.The situation has ignited fears of a trade war, prompting investors to dump riskier assets and take a flight to safety at least for the near term. Gold is often used to preserve wealth during financial and political uncertainty and usually does well when other asset classes struggle.Inflation ConcernThe inflationary pressure caused by new tariffs would benefit the precious metal's status as a hedge against rising prices.Central Bank BuyingCentral banks are one of the major drivers of gold prices. The banks are dominant buyers of gold as they seek to diversify their reserves away from the U.S. dollar. Strong demand from individual investors in emerging markets, such as India and China, is also acting as a tailwind for the precious metal. According to the latest report from World Gold Council (WGC), global gold demand reached a record high in 2024, driven by sustained central bank buying and growth in investment demand. Central banks accumulated over 1,000 tons of gold for the third consecutive year. Global investment demand increased 25% year over year.Low RatesThe prospect of lower interest bodes well for gold. Major central banks around the world are expected to continue their dovish monetary policies in 2025. Lower rates raise the yellow metal’s attractiveness compared with fixed-income assets such as bonds. Notably, gold is highly sensitive to rising U.S. interest rates, as these increase the opportunity costs of holding non-yielding bullion.ETFs in FocusBelow, we have provided a detailed analysis of the ETFs and some of the key differences between each:ProShares Ultra Gold ETF (UGL)ProShares Ultra Gold ETF seeks to deliver twice (2x or 200%) the return of the daily performance of the Bloomberg Gold Subindex. The product makes a profit when the gold market moves upward and is suitable for hedging purposes against rising gold prices. ProShares Ultra Gold ETF charges 95 bps in fees a year and has amassed $354.1 million in its asset base. Volume is good at around 161,000 shares per day (read: 5 Reasons Why Gold ETFs Are Smart Bets Now). DB Gold Double Long ETN (DGP)This ETN seeks to deliver twice the return of the daily performance of the Deutsche Bank Liquid Commodity Index Optimum Yield Gold. DGP initiates a long position in the gold futures market, charging 75 bps in fees per year from investors. It has accumulated $130.2 million in its asset base and trades in an average daily volume of 10,000 shares.Direxion Daily Gold Miners Index Bull 2X Shares (NUGT) Direxion Daily Gold Miners Index Bull 2X Shares provides two times exposure to the daily performance of the NYSE Arca Gold Miners Index. It charges 86 bps in annual fees and has gathered $584.5 million in its asset base. Volume is heavy, with around 2 million shares exchanged per day, on average. Direxion Daily Junior Gold Miners Index Bull 2x Shares (JNUG)Direxion Daily Junior Gold Miners Index Bull 2x Shares provides 2X exposure to the daily performance of the MVIS Global Junior Gold Miners Index. It charges 85 bps in annual fees and has accumulated $321 million in its asset base. Volume is heavy, exchanging about 704,000 shares per day on average.MicroSectors Gold Miners 3X Leveraged ETN (GDXU) MicroSectors Gold Miners 3X Leveraged ETN seeks to deliver three times the performance of the S-Network MicroSectors Gold Miners Index. It has amassed $348.2 million in its asset base and charges 95 bps in annual fees. MicroSectors Gold Miners 3X Leveraged ETN trades in an average daily volume of 785,000 shares.Bottom LineIt is clear that buying pressure has been intense for gold and that the recent trend is extremely favorable for the commodity, given the flight to safety and central bank purchases. Additional buying could be in the cards if the imposition of tariffs turns into a trade war. However, investors should note that since the above-mentioned products are extremely volatile, these are suitable only for traders and those with high-risk tolerance. Additionally, daily rebalancing — when combined with leverage — may make these products deviate significantly from the expected long-term performance figures (see: all the Leveraged Commodity ETFs here).Still, for ETF investors who are bullish on gold for the near term, either of the above products could be an interesting choice. A near-term long could be intriguing for those with high-risk tolerance, and a belief that the “trend is the friend” in this corner of the investing world.Want key ETF info delivered straight to your inbox?Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.Get it free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report ProShares Ultra Gold (UGL): ETF Research Reports Direxion Daily Gold Miners Index Bull 2X Shares (NUGT): ETF Research Reports DB Gold Double Long ETN (DGP): ETF Research Reports Direxion Daily Junior Gold Miners Index Bull 2X Shares (JNUG): ETF Research ReportsTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks
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