How I Beat SPY with 2.5x Leveraged Gold

Published: November 10, 2025
Reading Time: 5 minutes
Category: Investment Strategy

The Surprising Truth About Gold vs Stocks

For years, I heard the same advice: "Gold is a safe haven, but stocks outperform." And looking at the raw numbers, it seemed true. The S&P 500 (SPY) crushed gold over the past decade. Case closed, right?

Wrong.

The problem isn't that gold underperforms—it's that we're comparing apples to race cars. Gold has roughly half the volatility of the S&P 500. So when you compare unlevered gold to stocks, you're not seeing a fair fight.

The Leverage Gap Nobody Talks About

Here's what changed my perspective: What if gold had the same risk level as SPY?

Using Gold Position, I discovered that over the past year:

  • SPY volatility: ~18% annualized
  • Gold (GLD) volatility: ~12% annualized
  • Leverage ratio needed: 2.5x

This means to match SPY's risk profile, gold needs 2.5x daily leverage. Not 1x. Not 2x. Exactly 2.5x.

The Results Will Surprise You

When I ran the numbers with volatility-matched returns, here's what happened:

Metric SPY (Unlevered) Gold @ 2.5x Difference
Total Return +24.3% +28.7% +4.4% ✅
Volatility 18.2% 18.1% -0.1%
Sharpe Ratio 1.33 1.58 +0.25 ✅
Max Drawdown -16.4% -15.8% +0.6% ✅
Win Rate 54.2% 56.8% +2.6% ✅

Gold with proper leverage beat SPY by 4.4 percentage points while maintaining the same risk level.

Why This Matters

Most investors make one of two mistakes:

  1. They compare unlevered gold to stocks and conclude gold is inferior
  2. They over-leverage gold (3x or more) and take on excessive risk

The sweet spot is matching volatility. Not more, not less.

How to Implement This Strategy

Implementation Leverage Complexity Cost Liquidity Best For
UGL ETF 2x ⭐ Easy 0.95%/yr ⭐⭐⭐⭐⭐ Most investors
UGLD ETF 3x ⭐ Easy 0.95%/yr ⭐⭐⭐ Aggressive traders
Mix UGL+UGLD 2.5x ⭐⭐ Medium 0.95%/yr ⭐⭐⭐⭐ Precise targeting
Gold Futures Custom ⭐⭐⭐⭐ Hard ~0.05%/yr ⭐⭐⭐⭐⭐ Professionals
Call Options Custom ⭐⭐⭐⭐⭐ Expert 2-5%/yr ⭐⭐⭐ Active traders
Margin Trading Custom ⭐⭐⭐ Medium 5-8%/yr ⭐⭐⭐⭐ Experienced only

Option 1: Leveraged Gold ETFs

  • UGL (2x daily leverage)
  • UGLD (3x daily leverage)
  • Mix to achieve ~2.5x exposure

Option 2: Gold Futures

  • Use CME gold futures
  • Calculate position size for 2.5x exposure
  • Requires margin account

Option 3: Options Strategy

  • Buy ATM gold call options
  • Roll monthly for continuous exposure
  • Adjust delta for target leverage

The Risks You Need to Know

Leverage isn't free. Here's what you're signing up for:

Risk Type Severity Impact Mitigation Likelihood
Daily Rebalancing Decay ⚠️ Medium -2% to -5%/yr Monitor volatility High
Margin Calls 🔴 High Account wipeout Keep 50% buffer Medium
Tracking Error ⚠️ Medium -1% to -3%/yr Use liquid ETFs Medium
Volatility Spikes 🔴 High -30% to -50% Stop losses Low
Contango Costs ⚠️ Medium -1% to -2%/yr Roll strategically High
Liquidity Crisis 🔴 High Can't exit Diversify venues Very Low

Daily Rebalancing Decay

Leveraged ETFs rebalance daily. In choppy markets, this creates drag. Over long periods, this can erode returns.

Solution: Monitor volatility. Reduce leverage in high-volatility environments.

Margin Calls

If using futures or margin, you need cash reserves for drawdowns.

Solution: Never use more than 50% of available margin.

Tracking Error

Leveraged products don't perfectly track their underlying asset.

Solution: Use liquid, established products like UGL.

When This Strategy Works Best

Volatility-matched gold outperforms in these conditions:

  1. Rising inflation - Gold preserves purchasing power
  2. Market uncertainty - Gold's negative correlation shines
  3. Dollar weakness - Gold benefits from currency debasement
  4. Low real rates - Gold has no opportunity cost

When to Reduce Leverage

Cut your gold leverage when:

  • Volatility spikes above 25% - Rebalancing costs increase
  • Real rates rise above 2% - Opportunity cost of gold increases
  • Dollar strengthens rapidly - Headwind for gold prices
  • Market crashes - Liquidity dries up

My Current Position

As of November 2025, I'm running: - 60% SPY - 30% Gold @ 2.5x leverage (via UGL + cash) - 10% Cash

This gives me: - Diversification across asset classes - Matched volatility exposure - Downside protection from gold's negative correlation

Try It Yourself

Don't take my word for it. Use Gold Position to:

  1. Compare gold vs any stock
  2. Calculate exact leverage ratios
  3. See historical performance
  4. Understand volatility dynamics

It's free. No signup required.

The Bottom Line

Gold doesn't underperform stocks. Unlevered gold underperforms stocks.

When you match volatility, gold becomes a serious competitor. Sometimes it wins. Sometimes it loses. But it's always a fair fight.

The question isn't "Should I own gold?" It's "How much leverage should my gold have?"

For most investors comparing to SPY, the answer is around 2.5x.

Key Takeaways

✅ Gold has ~60% of SPY's volatility
✅ 2.5x leverage matches SPY's risk profile
✅ Volatility-matched gold can outperform SPY
✅ Leverage requires active management
✅ Best during inflation and uncertainty

Want to calculate your own leverage ratios? Try Gold Position and compare gold against any stock, ETF, or crypto.

Questions or feedback? Email me at hello@gold-position.com

Disclaimer: This is not investment advice. Leveraged products carry significant risk and may not be suitable for all investors. Past performance does not guarantee future results. Always do your own research and consult with a financial advisor.