This product offers leveraged exposure to gold futures, making it potentially useful for those looking to bet heavily on a short-term movement in the price of the precious metal. Given the leverage utilized, UGLD can be expected to exhibit a fair amount of volatility; this ETN is designed for investors who are both risk-tolerant and sophisticated; it has no place in a long-term, buy-and-hold portfolio, and should only be used by those with the ability to monitor the position closely.

This product offers leveraged exposure to gold futures, making it potentially useful for those looking to bet heavily on a short-term movement in the price of the precious metal. Given the leverage utilized, UGLD can be expected to exhibit a fair amount of volatility; this ETN is designed for investors who are both risk-tolerant and sophisticated; it has no place in a long-term, buy-and-hold portfolio, and should only be used by those with the ability to monitor the position closely.

There are several elements of UGLD that are noteworthy. First, it’s important to understand that the product offers exposure not to spot gold prices but to an index comprised of gold futures contracts. So the slope of the futures curve will have an impact on bottom line returns, as will yields derived from any uninvested cash. Second, be aware that UGLD’s exposure resets on a daily basis, meaning that performance over multiple trading sessions depends on the path taken by the index over that periods (daily compounding can either erode or enhance returns, depending on the environment). Third, investors should note that UGLD is an ETN, meaning that they are exposed to the credit risk of the issuing institution. There are, however, plenty of advantages to pursuing this strategy through the ETN structure. Tracking error, which can become significant in futures-based and leveraged strategies, is avoided. And investors won’t get a K-1 after holding this product; futures-based commodity ETFs typically generate those tax obligations, and can result in undesirable tax payments as well.

For investors seeking plain vanilla gold exposure, IAU is probably the best choice out there; that fund should move in unison with spot gold prices. UGLD can be a very powerful tool if used correctly, but if you’re not familiar with the nuances of leverage and futures-based strategies, it’s best to stay away.