We are almost ready to get UGL.
Not ugly, mind you, but UGL: the Ultra Gold ETF that uses derivatives to double the rises and falls of gold.
For some in our Stockhouse and Ticker Trax™ audience, getting UGL does mean getting pretty ugly. This exchange-traded fund in the U.S. market uses paper instruments to represent 2-x gold ownership.
Bullion purists cry oy gevalt onthat count. (For more, please see ThomWatch – Paper Beats Rock.)
Those who doth protest the month-old security say the use of options, futures contracts, forwards, swaps and other derivatives is not entirely kosher. I must agree to a great extent.
Yet if, to pose the philosophical queries that hound purists who believe rock (physical metal) beats paper, if one is preparing for a world where $3,000 gold, or $100 per actual gram, is commonplace, would not a 2-x commodity pool such as UGL (ticker is UGL) produce enormous profits during the tumult that will come with a bullion surge?
The ProShares UGL, or Ultra Gold, itself lists “market price variant risks” as one of the elements that might sour, were the price of gold to snap, in either direction. This means the actual nominal price of the security might get ugly and perhaps trade far higher or lower than the actual price of the underlying commodity.
In the case of this fund, which like all ETFs trades just like a stock, there is nothing underlying. The double leverage comes from those derivatives brewing in the ProShares crack shop. All of them are listed generically in the security’s risk section.
“I am leery of double and triple leverage ETFs,” says Glenn Cutler, a markets strategist and author of the new Glenn Cutler Special Situations and Financial Blog. “I fear one day these vehicles are going to implode, much as hedge funds.”
Fair enough, Mr. Glenn Cutler, who lives in Southern California and whom I have followed in my writings since 1985 and consider a friend.
Yet what if, getting back to the query, what if gold goes nuts tomorrow or the next day? One snapshot: Enough folks will want to own the metal that they would think little of parking their cash in UGL, at least until they could get their hands on the real deal: coins, bars and repository-guaranteed bullion.
As Ticker Trax By Thom Calandra™ and ThomWatch viewers know, gold forward rates are so close to zero, they are about belly-up to the big curve of the fat 0. London Bullion Metal Association figures, published each day, track counterparty risk and the desire (or lack of) to own gold, or silver, immediately.
The GOFO, or one-month gold forward rate that measures counterparty risk, was dropping this week to its its lowest point since Dec. 16. The near-zero rate could just be reflecting low LIBOR and other interest rates. Or the GOFO could be telling us that big banks, trusts and funds are increasingly hesitant to agree to trades that use paper currencies and CUSIP’d certificates instead of cool, heavy gold.
Investors in electronic transactions, in other words, are giving currencies and various swaps the boot.
On this final day of the calendar year 2008, investors are demanding immediate ownership of gold and silver coins and bars. Platinum coins are selling out, too. Premiums on sovereign bullion coins are running well above 10 percent. That’s thick.
If this continues, paper securities such as UGL will go blazooey, if even for just a day, or a week, or a month. Yes it will get ugly. Yes, it will make some people into overnight slumming millionaires.
Ticker Trax™ -- pretty & ugly
Ticker Trax By Thom Calandra™ and its growing group of subscribers are steady in the belief that rising demand for physical gold will boost bullion prices against all currencies.
Coins and bars are wondrous. But those willing to gestalt the gevalt must consider UGL in addition to closed-end bullion repository Central Fund of Canada (AMEX: CEF and TSX: T.CEF.A), which trades at a discount or premium to its actual underlying gold and silver assets held in a vault.
A gold rush linked to geopolitical and fiscal tremors almost certainly would send either’s price into the stratosphere. Few of us desire a world where gold is exchanging hands for $100 per gram. But most of us might consider preparing for it, if only to supplement our lifestyle strategies.
That’s it for now.
Vancouver in January
We are preparing a Ticker Trax™ fully hostedcocktail party the evening of Jan. 24, on the eve of Joe Martin and Howard Fitch’s annual metals blast in downtown Vancouver, British Columbia. Please email me if you are interested in joining our Ticker Trax friends.
Paying subscribers of Ticker Trax™ will receive their next issue on Jan. 5.
(Please see: www.TickerTrax.com.)
On The Ticker Trax™
Ticker Trax By Thom Calandra™explores planet Earth for those few stakes that offer the prospect of excellent, in some cases cosmic, returns. It is for those who are entirely at ease with stratospheric levels of risk attached to a handful of planetary prospects. (Please see www.TickerTrax for charter sign-up price.)
Please see inaugural sample issue of Ticker Trax™. Bonus: Please take a look at the Ticker Trax™ discussion group on Stockhouse.
HOLDINGS: Thom’s cosmos of holdings is listed for free Stockhouse members on www.Stockhouse.com under the “portfolio setting” for user TCALANDRA. He and his family also own recently minted gold coins. For more ThomWatch, please click here.
THOM’S STORY: Thom Calandra in 26 years has helped his audience find value in a quagmire of investment choices. Thom co-founded CBS MarketWatch, MarketWatch.com and FT MarketWatch in Europe. As the voice of and , Thom fancied $300-ounce gold before that metal became an investment rage. Thom visited bioscience companies, metals mines and energy companies, along with thin-crust pie joints across the planet, in a search for profit, reliable sources and pizze de trippa gorgonzola. He was not perfect, having settled a U.S. Securities & Exchange Commission complaint in 2004. Thom's novel was completed in summer 2008. He is continuing his search for the planet’s finest prospects. Thom Calandra's StockWatchThe Calandra ReportPABLO BY NUMBERS
