Gold, Silver ETFs Reap The Benefits Of The Futures Market

By Leks Gerlak

At a Look

ProShares gold and silver ETFs have seen a big tightening in bid/ask spreads since benchmarking to COMEX futures. Buying and selling exercise since January has elevated by $three million per day.

On January 7, ProShares modified the benchmarks of its 2x leveraged and -2x inverse gold and silver ETFs (UGL, GLL, AGQ, ZSL) from LBMA public sale costs to Bloomberg futures-based commodity subindexes. This marked the primary time leveraged and inverse ETFs have been benchmarked to gold and silver futures costs.

Benefits of Futures Benchmarks

Leveraged and inverse commodity exchange-traded merchandise (ETPs) sometimes use derivatives to acquire publicity, versus transacting in bodily commodities. Earlier than switching to futures-based indexes, ProShares gold and silver ETFs obtained their publicity by way of forwards – negotiated OTC contracts between particular person establishments. Traditionally, financing prices from forwards and buying and selling charges for ahead counterparties to take part within the London auctions have been vital. In leveraging the COMEX futures market to handle our funds, now we have seen each decrease prices and better market transparency in comparison with utilizing a forwards-based mannequin.

Spreads Inform the Story

Maybe essentially the most impactful results of the swap to this point, although, has been a big tightening in bid/ask spreads. We attribute this to COMEX’s 24-hour buying and selling by way of a clearing home, extremely standardized futures contracts with deep liquidity, and robust market integrity.

Stronger Buying and selling Exercise

For the reason that benchmark change on January 7, we have additionally seen elevated buying and selling exercise – to the tune of $three million. The common every day turnover of ProShares gold and silver ETFs from January 7 to March 31 was $9.6 million, versus $6.6 million for a similar time-frame previous to the change.

What’s Subsequent for Valuable Metallic Investing?

Secure haven belongings may transfer to the forefront of the funding panorama as the worldwide economic system navigates a difficult surroundings, making leveraged valuable metals ETFs enticing for his or her cost-effectiveness. And if the 12 months brings elevated volatility to gold and silver costs, leveraged and inverse valuable metals ETFs might change into sought-after autos for lively merchants and hedgers.

Editor’s Notice: The abstract bullets for this text have been chosen by Looking for Alpha editors.

Product categories