Trend: Several new leveraged gold ETFs offer alternative ways for investors to profit from moves in gold prices.
Sam Kirtley explains why he is intrigued by the new leveraged gold ETFs. Excerpts below.
Link: Leveraged Gold ETFs: The End of Gold Stocks - Seeking Alpha.
We do not see the reason to own gold stocks if an ETF is going to offer you decent leverage that is actually tied to the gold price, not to a company’s press releases. Remember a stock can be affected by rising production costs and political instability in area of mining. In addition to this if one is not investing in mining companies, one does not have to devote time to the analysis of geological results, management teams, balance sheets and company operations. This leaves more time for gold itself, the general market and the economy, which should lead to better investment decisions as one can concentrate on the precious metals bull market, rather than company details.
So we see very little reason to buy positions in gold stocks in the future and we are going to give some serious thought to moving from mining companies to leveraged ETFs over the coming months. If 200% exposure isn’t enough, then one can always buy on margin and increase that leverage to 400%. One can also go short by buying an inverse ETF, allowing one to profit from both the ups and downs of the bull. Gold stocks may get a boost in the final leg of the bull market though, as “the herd” stampedes in and forks out cash for anything that glitters. And of course, the gold mining companies will still make a lot of money as gold prices continue to rise, but we feel the ETFs offer a slightly better deal. Also, bear in mind that the 200% leverage offered by ETFs is a mathematical relationship, whereas the leverage from mining stocks is a rough estimate of what might happen, in other words: a hopeful guess.
The comments to this article offer some insights worth noting....
- Well...a nice puff piece. But you really fail to mention the differences in risk with a bullion based ETF and a leveraged gold ET(N).
GLD has bullion in vault. The leveraged product has unsecured notes from the issuing bank. when Armageddon happens (read implosion cough cough Bear....XShares) what do you want to be holding??? - I read that a commodity based ETN may issue you a Schedule-K, complicating your income taxes, even if you hold the ETN in a 401K.
- Perfect contrarian article. "It's different this time"! I am buying more gold producers today. Time will tell!
- A commodity-based exchange-traded NOTE won't issue a Schedule K-1, but and exchange-traded FUND might.
The new leveraged gold ETFs included:
- DB Gold Double Short ETN (DZZ)
- DB Gold Double Long ETN (DGP)
- DB Gold Short ETN (DGZ)
- Horizons BetaPro Comex Gold Bullion Bull Plus ETF (HBU)
- Horizons BetaPro Comex Gold Bullion Bear Plus ETF (HBD)
- Horizons BetaPro S&P/TSX Global Mining Bull Plus ETF (HMU)
- Horizons BetaPro S&P/TSX Global Mining Bear Plus ETF (HMD)
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