The gold products include
PowerShares DB Gold
ProShares Ultra Gold
ProShares UltraShort Gold
The silver products include
PowerShares DB Silver Fund
ProShares Ultra Silver ETF
ProShares UltraShort Silver ETF
PowerShares DB Gold and Silver use Deutsche Bank's Optimum Yield Index, which aims to maximize gains from backwardation (futures prices lower than spot prices) and minimize losses from contango (futures prices higher than spot prices). ProShares funds are leveraged and deliver double the daily change in prices.
Exchange-traded notes are debt instruments that track an index. These have more favorable tax treatment; they are taxed as stocks and subject to the 15% long-term capital gains rate.
ETNs, however, expose the investor to the credit risk of the issuer. Investors should be mindful of this special type of risk before they purchase these funds.
The gold ETNs include
PowerShares DB Gold Double Short ETN
PowerShares DB Gold Double Long ETN
PowerShares DB Gold Short ETN
E-TRACS CMCI Gold Total Return
The silver ETN is
E-TRACS CMCI Silver ETN
As with the PowerShares DB ETFs, Gold and Silver ETNs use the Optimum Yield Index. The leveraged ETNs deliver twice the monthly change in gold or silver. E-TRACS CMCI, issued by UBS, tracks a basket of futures spread across five maturity dates and "is designed to be representative of the entire liquid forward curve of the gold (or silver) contracts."
The gold ETF is Market Vectors Gold Miners. This fund tracks the NYSE Arca Gold Miners Index, which tracks companies primarily engaged in gold mining. GDX currently holds 32 stocks and top holdings include
AngloGold Ashanti Limited ADR
Assessing Risk Tolerance
Changes to leveraged and/or futures-based commodity funds could be damaging to the structure of corresponding gold and silver ETFs. As regulation is hashed out, the average investor is better off gaining exposure to these metals through physical or equity based instruments. Only sophisticated investors should consider leveraged products.
Investors with tax-sheltered accounts would be wise to avoid the ETNs because they would not capture the tax advantages, and also because the ongoing financial crisis increases the credit risk inherent with these products. The physical ETFs offer lower fees than the futures ETFs and, therefore, offer more value.
-- Written by Don Dion in Williamstown, Mass.