UGL ETF

Leveraged ETFs like ProShares Ultra Gold are risky during sideways or downtrending markets, with a high expense ratio of 0.95%. A critical period is approaching for gold due to a bullish U.S. dollar, rising Treasury yields. The spread between UGL and its unleveraged counterpart, such as SPDR® Gold Shares ETF, is widening and has reached a new high, indicating an overbought condition.

Leveraged ETFs like ProShares Ultra Gold can magnify returns, but are prone to drift. A drift watchlist with 22 of them. Leveraged ETFs in semiconductors show the largest drifts. UGL drift history points to an unattractive risk/reward trade-off.

ProShares Ultra Gold ETF is a daily leveraged play on Gold. If Gold trades sideways and volatile, the UGL ETF would not perform 2x as well as Gold. If Gold is in a secular bull trend, this is a geared way to play it for traders.

Gold is a trading vehicle to me, not a long-term investment. I do see some near-term potential for it to continue to "rip" higher and so a small position in 2X ETF gold long UGL is my approach. I review how I got here vs. my more negative view on gold six months ago.

The Ultra Gold ETF attempts to track the price of gold with a 2x leverage factor, but the mechanics of daily resetting can lead to value erosion. UGL has not sufficiently outperformed normal gold ETFs due to the risks associated with leverage and daily resetting when assessing over longer horizons. For shorter holding periods, UGL offers cheaper leverage, but for longer periods, other gold ETFs without leverage are more cost-effective.

Rising implied gold lease rates indicate tight physical supply, with higher prices likely. Historical data shows that periods of spiking lease rates have been bullish for gold prices, making it a sound investment backed by logic and precedent. The worsening U.S. fiscal deficit/debt problem has pushed overseas central banks to diversify their foreign exchange holdings with extra gold.

Gold futures settled higher Monday for a second straight session, supported by a pullback in the U.S. dollar. Investors await Wednesday's U.S. CPI data, which can provide clues on the Federal Reserve's interest-rate decision later this month.

Aggressive gold investors may buy gold using leverage with the ProShares 2X gold fund. Three Key Indicators based on investor activity and newsletter writer expectations point to higher gold prices. The charts of UGL's net asset value and buying activity in UGL also suggests a significant move in gold, with a potential gain of 41% to 66%.