7970 / What is a “Double Gold” ETF? How is its yield taxed?

A Double Gold ETF is an exchange-traded fund that tracks the value of gold and responds to movements in the same manner as an otherwise similar double leveraged ETF. A double gold ETF is one in which the spot value of gold or a basket of gold companies acts as the underlying asset for the fund. The ETF attempts to deliver price movements that are twice the value of the movements of the underlying gold.

It is important to note that even though there is a potential for recognizing significant profits with this strategy, the risk of loss is also significant because the price could fall dramatically. Double gold ETFs are by no means a unique fund product. There are numerous leveraged ETFs that aim to deliver movements equal to two or more times the movements of their underlying assets. Some examples include leveraged ETFs on natural gas and crude oil. These ETFs can also aim to mimic an inverse movement relative to the underlying assets; such ETFs are known as inverse or bear ETFs.

It is also important to remember that trades or investments in gold are treated “collectibles” for tax purposes. The same applies to ETFs that trade or hold gold. As a collectible, if gain is short-term, then it is taxed as ordinary income. If gain is earned over a period spanning more than one year, then it is taxed at one of three long-term capital gains rates, depending on the investor’s income tax bracket. This means that investors cannot take advantage of normal capital gains tax rates on investments in ETFs that invest in gold for shorter-term investment.