A sudden reversal in the precious metals rally has left investors scrambling to once again reassess how gold should fit into their portfolios.
Still, despite the per-ounce price plunging hundreds of dollars from an all-time high of around $5,600, gold is still up 68% over the past year—and the first days of February have also brought a moderate recovery from the recent dip as well.
One thing seems to be certain: No matter which way the price of gold moves in the near term, investors should expect it to do so in a highly volatile manner. Given that scenario, it is possible to achieve outsized returns beyond what one might accomplish by simply holding physical gold or shares in gold mining stocks by targeting exchange-traded funds (ETFs) or similar products employing a leveraged approach.
All leveraged exchange-traded products (ETPs) carry a high degree of risk and are not appropriate for many investment strategies. Still, the following three funds may stand out to investors willing to make a big bet on gold.
1. A Rare 3X Leveraged Play on the Price of Gold
One of a number of gold-focused leveraged products, the is an exchange-traded note (ETN) targeting the price of gold bullion. It offers 3x daily leverage, meaning that it aims to triple daily returns of the price of gold. However, losses are similarly amplified 3x.
achieves its goal not by investing in physical gold directly but by providing a leveraged play on the , an ETF holding stores of gold bullion in vaults and one of the most popular access points for investors interested in the precious metal.
This SHNY is a more extreme approach to a leveraged physical gold play due to its 3x leverage. This makes it appropriate for investors highly confident in a short-term, single-day price increases in gold. For those seeking a slightly more moderate risk/reward profile, an alternative leveraged ETN—the —provides 2x leveraged exposure to gold futures.
Despite its risks, with an expense ratio of 0.95% and a healthy trading volume averaging more than 184,000 for a one-month period, SHNY is one of the best ways for gold bulls to capitalize on big upward movements in the price of the yellow metal.
2. Capitalizing on Gold Mining Companies That Have Outpaced Gold’s Gains
The MicroSectors Gold Miners 3X Leveraged ETN is a sibling product to the SHNY. However, it focuses on gold mining stocks rather than on physical bullion. Like the SHNY, the GDXU provides 3x leverage and also achieves this through a strategy involving holding other ETPs.
The GDXU’s holdings include the and the . Together, these two ETFs offer exposure to gold mining stocks across a variety of market capitalizations.
Gold mining companies provide indirect exposure to the price of gold. Although they tend to move in tandem with fluctuations in gold’s price, miners are also impacted by a number of other factors, including the prices of other metals they produce, individual company operations, geopolitical issues, and more. For this reason, the GDXU may appeal to investors who are looking for a cushion from the price of gold itself, but who still want exposure to miners’ growth alongside a protracted metals rally.
The GDX and the GDXJ are up 126.7% and 136.5%, respectively, over the last year, outpacing the gains gold itself. In turn, the GDXU has had abundant opportunities to return sizable leveraged gains for traders.
The fund carries an expense ratio of 0.95% and its average daily trading volume is substantially higher than the SHNY, which may appeal to investors who are concerned about liquidity.
3. A Junior Gold Mining ETF With a Dividend Bonus
The provides 2x leverage on junior gold mining stocks.
A slightly more costly alternative to the ETFs previously discussed, the JNUG offers a more modest leverage profile at 2x leverage while paying a dividend that yields 0.95%. That payout helps offset some of the fund’s expense ratio, which stands at 1.02%.
JNUG is primarily based on the GDXJ—with other holdings facilitating its leverage—providing it access to small- and mid-cap gold mining firms. It therefore has a narrower focus than the GDXJ and may appeal to investors primarily interested in smaller gold mining names that could experience significant growth during an extended gold rally.
