“They may not have been producing when prices were lower, but as soon as gold reaches that threshold where it becomes profitable to start making cuts into the ground again they not only go from taking a year-over-year loss on that field but they become highly profitable and can even ramp up volume to squeeze as much juice out of that lemon as they can,” says Bailin. “You see that reflected in their shares.”
Such funds, he notes, can be leveraged plays, because at the point of profitability the shares of those companies often climb faster than the price of the metal they mine.
Double Gold ETFs, in fact, seek to double the investment return of either gold bullion or a specific gold index through operational leverage – for better or worse.
If the price of gold goes up by 10 percent, the fund would attempt to return 20 percent.
The reverse, of course, also applies. If the price of gold falls by 10 percent, the fund would tumble 20 percent.
With a one-year return of 87 percent, ProShares Ultra Gold is among them.
As stock funds, however, all equity ETFs are vulnerable to movements in the overall stock market, management changes and operational challenges.
As such, they are best left to seasoned investors who can stomach a little risk, says Bailin.