Deutsche's new ETNs offer short exposure to gold; JPMorgan adds precious metals to commodity basket

By Kenneth Lim

Boston, Feb. 28 - Deutsche Bank on Thursday launched three series of exchange-traded notes linked to long and short positions in gold prices, a first in the United States, the bank said.

The Gold Double Short Exchange Traded Note, which will trade under the symbol DZZ, will offer exposure to double the monthly inverse performance of the Deutsche Bank Liquid Commodity Index - Optimum Yield Gold plus a monthly T-Bill index return. The Gold Double Long Exchange Traded Note, which will trade as DGP, will participate in double the monthly performance of the gold index plus the monthly T-Bill index return. The Gold Short Exchange Traded Note, which will trade as DGZ, will offer exposure to the monthly inverse performance of the gold index plus the T-Bill index return.

All the securities are subject to an investor fee, and none of them are principal protected.

"The ETNs will be the first to offer investors short or leveraged exposure to gold," Deutsche Bank said in a press release.

Kevin Rich, managing director of Deutsche's Global Markets Investment Products Group, said the products were being offered in the United States for the first time and were a reaction to feedback from investors.

"We aim to create interesting products which meet investors' needs," he said. "Investors have been asking about gold and oil prices, particularly whether or not we think there is a bubble and whether or not we think this is sustainable."

The products offer investors a way to take a view on gold prices, he said.

"The short products are for people who think that gold is at all-time high levels and the dollar is at all-time lows," he explained. "The Double Long ETNs are for those who think that gold prices can go higher."

He said the exchange-traded structure can benefit investors.

"Exchange-traded products in general share a few common beneficial features for investors, one is liquidity," he said. And "because broker-dealers can create and redeem shares on a daily basis, the notes trade very close to their real net asset value."

Gold was chosen as the underlying commodity for the new product because of the size of the gold market, he said.

"Gold ETFs were the first commodity ETFs available, initially launched about three and a half years ago," Rich said. "They have the bulk of the assets in the commodities market, and if you're offering an alternative to the long-only strategy you want to offer it where most of the assets are."

Watching reception

Whether or not Deutsche will begin to offer similar notes with different underlying commodities remains to be seen, he said.

"Clearly we'll watch how well the notes are received in the market," Rich said. "We're driven by investor interest."

An independent broker-dealer said the product was interesting.

"I think it's coming at an interesting time," the broker-dealer said.

"The dollar is at an all-time low, and people who have been following gold will tell you that gold prices have been climbing for the longest time. These are certainly interesting times for many markets, and I think this taps into that opportunity."

JPMorgan links to weighted commodities

Deutsche Bank was not the only one looking at precious metals. JPMorgan Chase & Co. announced plans for a series of 0% buffered return enhanced notes due Sept. 17, 2012 linked to a basket of two commodity indexes.

The basket comprises the Dow Jones-AIG Commodity Index with a 75% weight and the S&P GSCI Precious Metals Index Excess Return with a 25% weight.

If the final basket level is at least the initial level, the notes will pay par plus 1.3 to 1.35 times any basket gain at maturity. Investors will receive par if the index decline does not exceed the buffer protection of 20%, but each 1% that the index declines beyond 20% will erode the principal by 1%.

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