Apparently, they are to be in complete inverse relationship to gold prices so that if gold goes up 10% the ETF drops 10% or vice-versa.
Let’s say I buy an ETF at $10 when gold is at $1500/ozt. If gold plummets to $750/ozt then would my ETF be worth $15. Let’s say the gov’t confiscates all gold again so that it is worth $0 or a 100% decline. Does that mean that the ETF went up to $20? If so, then what’s the point if the best case scenerio is that you double your money?
That’s not how they work. They are relevered every day (I believe some have more recently be changed to relever every month). So if the price of gold goes from 1500 to 750 then 750 to 375 then 375 to 187.50 on four successive days, it’s lost half its value each day and (in principle) you’d double your money each day on a reverse ETF and it’s value would go from 10 to 20 to 40 to 80. If the price continued to half each day, in principle your money would become infinite after an infinite number of days.
But it’s not nearly that simple either. There are management fees and expenses and if the underlying doesn’t move straight up or down in a constant percentage, then the volatility also affects the performance.