The Golden Target: Analyzing the Tracking Performance of Leveraged Gold ETFs
Studies in Economics and Finance, vol 32, issue 3, pp.278 - 297, 2015
20 Pages Posted: 20 Aug 2014 Last revised: 1 Aug 2015
Date Written: January 22, 2015
This paper studies the empirical tracking performance of leveraged ETFs on gold, and their price relationships with gold spot and futures. For tracking the gold spot, we find that our optimized portfolios with short-term gold futures are highly effective in replicating prices. The market-traded gold ETF (GLD) also exhibits a similar tracking performance. However, we show that leveraged gold ETFs tend to underperform their corresponding leveraged benchmark. Moreover, the underperformance worsens over a longer holding period. In contrast, we illustrate that a dynamic portfolio of gold futures tracks significantly better than various static portfolios. The dynamic portfolio also consistently outperforms the respective market-traded LETFs for different leverage ratios over multiple years.
Keywords: gold spot, futures, exchange-traded funds, leveraged ETFs
JEL Classification: G11, B23, C10
Suggested Citation: Suggested Citation