Gold Model: Turns Neutral
Our gold model is based upon interest rates and technical inputs. Specifically, our gold model performs best when both our bond model is positive and yields on the 10 year Treasury are lower than the value 26 weeks ago. Yields on the 10 Treasury are pushing higher, and our bond model is no longer positive. Thus the “sell” signal from the fundamental portion of our gold model. However, the technical side of the equation remains intact.
First, let’s look at how gold performed when the fundamental inputs are negative. If we were so good to buy gold only during these times, you would get the following equity curve. See figure 1.
Figure 1. Equity Curve
From 1980 to 2000, this strategy performed poorly. Starting in 2000, it didn’t really matter when you bought gold, and this would be consistent with a secular bull market. It’s a “buy the dip” mentality. Bull markets have a way of making investors look great. So is the bull market in gold over? Should we ignore the fundamental inputs to the gold model?
In January, 2013, I will be introducing a new subscriber product called “TacticalBeta”. TacticalBeta is a website that is all about a strategy commonly employed by hedge funds and endowments and that encompasses the best practices of generations -- tactical asset allocation.
The TacticalBeta subscriber will have exclusive access to our proprietary Daily Sentiment Report, Weekly Sentiment Report, and The Chart Book. There are two model portfolios, trade recommendations, and options to download our proprietary data used in our trading models. Our content will be more actionable and useable for investors. If you currently receive TheTechnicalTake via our free weekly newsletter to your email inbox, this service will continue without interruption.
TacticalBeta is a collaborative effort between me and the InvestingChannel, which is a global media company with a platform that spans over 300 financial websites with a reach of over 10 million viewers monthly.
TacticalBeta is asset allocation with an edge!
First, I don’t believe the bull market in gold is over, and to understand why I would make this statement, I look to gold market technicals. See figure 2 a weekly chart of a continuous gold futures contract. The red dots are key pivot points or the best areas of buying support.
Figure 2. Gold/ weekly
As long as prices remain above the key support levels at 1578, gold should remain in a bull market. A weekly close below 3 key pivot points is a consistent technical sign of a bear market that is quantifiable across multiple markets. Technically, gold remains in a bull market and prices are just above support levels. This makes for a good low risk entry point. By our measures, fundamental dynamics do not support higher gold prices, but this is a bull market in gold until proven otherwise, and a “buy the dip” mentality always prevails until it doesn’t. Prices may touch support levels, but failure at these levels would be consistent with the end of the bull market in gold.
Category: Gold
Gold economics: Extremely simple.
As long as Keynesian monetary principles, call the shots with the world’s central banks and their governments keep spending like gamblers who ante up, every time, on the come line with the resulting hyperinflation, gold and other precious metals will continue to be the real thing, i.e. real money, not Fiat currency. Governments will eventually have to concede to market forces, but until such time, market gyrations in these markets will either represent buy opportunities or short term, profit-taking, until such time, that the Keynesian sleight-of-hand trick,has pulled off its intended collapse with stock and bond investors holding the bag that has been robbed, while central banks still hold the gold reserves they have been gradually building up. The imposed inflation to the government and their central banks, can be seen as protection money and the collapse, is just the ultimate take down with the political elites and their central banks holding the vast majority,Of real stuff, that being gold and precious metals.