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Guide to Precious Metals: Gold

The physically backed ETFs are taxed as collectibles, with a 28% long-term capital gains rate.

Futures Backed. PowerShares has launched its own product designed to draw in gold bulls, the PowerShares DB Gold Fund (DGL). Unlike GLD, IAU and SGOL, DGL follows the price of gold by tracking a basket of futures contracts.

The fund follows a Deutsche Bank optimum-yield index to select contracts for the ETF. This strategy attempts to minimize the effects a negative contract roll can have on the fund while maximizing the positive gains seen from backwardation.

Currently, futures-based precious metals ETFs like DGL have fallen under the scrutiny of the Commodities Futures Trading Commission. The regulatory body is concerned that if a single futures-backed commodity fund were to grow too large, it could manipulate or distort the market. In an effort to stop an event like this from occurring, the CFTC has recently been considering tightening position limits.

With a three month average volume of less than 50,000, this fund is less liquid than the physically backed options. Players looking to move quickly in and out of positions should use caution.

They are taxed as futures, with a 60% long-term capital gains rate and a 40% short-term capital gains rate. Each investor in these funds is responsible for paying annual taxes and receives a Schedule K-1 form every year reporting his or her share of the fund's income.

Leveraged. There exists a number of exchange traded funds and notes that allow investors to take magnified bullish or bearish bets on the future price of gold. First are the ETFs: ProShares Ultra Gold ETF (UGL) and ProShares UltraShort Gold ETF (GLL). These are taxed the same as the futures ETFs and deliver 2X the daily movement in the price of gold.

PowerShares offers leveraged gold ETNs tracking Deutsche Bank optimum yield indexes. There are two big differences from the ProShares. First, they come with the addition of issuer credit risk (in this case Deutsche Bank), since these are structured as debt, but that also means they are taxed at the same as single stocks, with short- or long-term capital gains dependent on how long the investor holds the fund. Second, the PowerShares ETNs reset monthly, not daily.
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DZZ $5.64 0.00%
DGP $28.04 0.00%
DGL $42.30 0.00%
GLD $123.65 0.00%
SGOL $126.01 0.00%


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