UGL 2x Gold 15% Dump: Start To Be A Potentially Risky Choice

seekingalpha2024-11-19

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, ...

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overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nUGL 2x Gold 15% Dump: Start To Be A Potentially Risky Choice\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-19 13:28 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4738534-ugl-2x-gold-15-percent-dump-start-to-be-a-potentially-risky-choice><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>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, ...</p>\n\n<a href=\"https://seekingalpha.com/article/4738534-ugl-2x-gold-15-percent-dump-start-to-be-a-potentially-risky-choice\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"UGL","symbol_name":"二倍做多黄金ETF(ProShares)","start_time":0,"source_url":"https://seekingalpha.com/article/4738534-ugl-2x-gold-15-percent-dump-start-to-be-a-potentially-risky-choice","article_id":"2484966104","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1250588930/image_1250588930.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2484966104","pubTimestamp":1731994102,"columns":[],"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"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, r","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"UGL":"二倍做多黄金ETF(ProShares)"},"translate_title":"UGL 2x黄金15%转储：开始成为一个潜在风险的选择","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"UGL":0.9},"content_text":"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.   Klaus Vedfelt  This might be an unpopular opinion, but I believe a critical period is approaching for gold. With the potential for a continued bullish trend in the U.S. dollar, rising yields on U.S. Treasury bonds, and an overbought condition for gold, we may see a sideways movement in gold prices. While holding gold in a portfolio can be a smart move in any economic environment, I don’t think the same applies to The ProShares Ultra Gold ETF (NYSEARCA:UGL). It seeks to achieve 2x the performance of the Bloomberg Gold Subindex, but often underperforms when gold prices are stable or declining. UGL: The Impact of Leverage and Why a 1% Expense Ratio Can Be Risky  I have to admit that I'm not a big fan of leveraged ETFs. This is mainly because these ETFs typically \"reset\" daily and are designed to achieve their stated objectives on a daily basis. Therefore, it doesn’t mean that UGL’s price will consistently follow 2x the performance of gold over the long term. According to Investor.gov: Their performance over longer periods of time -- over weeks or months or years -- can differ significantly from the stated multiple of the performance (or inverse of the performance) of their underlying index or benchmark during the same period of time. However, returning to the UGL ETF, I believe it is not always the best way to invest in gold. Firstly, the expense ratio of UGL is 0.95% (almost 1%), which is 93% higher than the median. Expense Grade and Underlying Metrics (Seeking Alpha) I don’t usually focus on the expense ratio but rather on performance comparisons with peers. However, in this case, I have to admit that an expense ratio of 1% is quite high and difficult to justify, especially for a long-term investment. It can be particularly risky during sideways or downtrending markets because, despite the losses, you will still be paying a 1% fee annually. In contrast, other non-leveraged options like the SPDR® Gold Shares ETF (GLD) have a median expense ratio of 0.40%, which is more than 50% lower. Chart Comparison with GLD By adding UGL and GLD to a performance chart, we can quickly see that over a 5-year period, UGL's performance is not 2x that of GLD. This is because, during sideways or downtrending markets, UGL's losses are greater than those of GLD. When the underlying price starts to rise again, the leveraged ETF requires more time than GLD to recover its losses. Take a look at this study for a deeper analysis. Performance Chart (Seeking Alpha) So, it’s easy to understand that there are periods when taking a position in UGL can be interesting, and periods when it may not be convenient. To determine when it might be advantageous or not from a mathematical standpoint, it could be useful to take a closer look at the spread between the performances. UGL - GLD Spread Chart (StockCharts.com) And with a quick look at the chart, we can see that we are approaching a critical point on the spread chart, a level last observed after the 2020 gold bull run, which started during the COVID-19 crisis. Why is this level of spread risky? A Macro Perspective. I believe that taking a position in a leveraged ETF can be particularly risky when the spread is too high. This is because the probability of taking profits increases, and a sudden drop can have a much greater impact on a leveraged ETF. It then requires more time to recover from losses compared to the underlying asset. But why would the price of gold enter a sideways or downtrend? Over the past year, we have witnessed an incredible increase in the price of gold (XAUUSD), driven by two fundamental factors: a decrease in interest rates (leading to a decline in Treasury yields) and a weakening of the DXY (U.S. Dollar Index). This, combined with an uncertain market sentiment, has resulted in a surge in gold demand. However, recently, before the election results were known, we experienced a curious situation. Treasury yields (especially those for maturities over 20 years) have started to rise again, and the DXY has been rapidly strengthening. Despite this, the market continued to buy gold, which is unusual given the typical inverse relationship between these factors. The uncertainty stemmed from what might happen with the U.S. election: nobody knew (perhaps) if Trump would become the next U.S. president. Performance Chart (TradingView) With Donald Trump’s election, the market, in my opinion, started to move past its uncertainty and began aligning with the outlook of the new U.S. president. Now, Treasury yields are increasing, even on the short end of the curve. The U.S. dollar is strengthening, while the Euro (EUR/USD) is weakening. This time, gold is also being sold off, aligning with its typical macro role: rising expectations for the dollar increase the implicit cost of holding gold. Considering higher yields in a period of falling interest rates, the opportunity cost of investing in gold rises as well. Risk So why is Trump causing the dollar to strengthen? His protectionist policies could lead to a \"trade war,\" resulting in the depreciation of foreign currencies, thus driving the DXY higher. At the same time, a new fear is emerging in the market: the potential return of inflation. According to the latest speech by Jerome Powell, the Federal Reserve is not in a hurry to lower interest rates unless the economic data necessitate it. Moreover, inflation has increased by 0.2% as expected in the October data, while the unemployment rate has declined. US inflation rate MoM (Trading Economics) The CME FedWatch Tool has lowered the probability of a rate cut at the next meeting from 78% to 61%. FedWatch Tool (CME) That said, it’s important to remember that market sentiment can shift quickly. Precious metals play a role in the ongoing de-dollarization process, which has been boosting gold demand. With rising inflation and trade tensions between the U.S. and global markets, gold could once again attract strong interest as a safe haven. This renewed interest might spark another wave of demand, potentially pushing gold prices to new highs. Conclusion Are the market’s concerns valid? Maybe. Given the current data, it looks that way, which is why I believe investing in leveraged products like UGL carries significant risk.  In my opinion, the appropriate rating for UGL is SELL. The high level of the spread, combined with the new expectations for a stronger dollar, the increase in Treasury yields, and the declining probability of a rate cut in December, make UGL excessively risky.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"-1","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.30.0","shortVersion":"4.30.0","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2484966104"}