Minutes Digest for Feb 04 2021

As the table below shows, Gold is having a rough day in several currencies. While gold prices will generally move in lockstep across various currencies, sometimes a basket provides an early heads up to a developing trend. A weight-of-the-evidence approach is always preferable when possible. One technique I like is measuring the average distance from a 252-day high for a group of securities. The method allows me to create a definable threshold for a cross above or below type of signal.

As I write this note, Gold, averaged across ten currencies, is crossing below the -15% threshold from a 252-day high.

Let's take a look at Gold's performance when this scenario has occurred throughout history.

Chart Example

Signal Performance

Gold's performance is slightly better in the  1-4 week timeframe versus the study period and very solid in the 2-3 month window. 

Signal Performance

Let's take a look at the same signal with a cross below -20%. As the table below shows, results are robust in the 1-4 week timeframe and continue to be strong in the 2-3 month window. Can anyone say mean reversion?

With stocks ramping early yet again, gold is getting hammered. It's suffered enough lately that its 50-day moving average is on the cusp of crossing below the 200-day average.

This would end one of its longest-ever positive streaks.

The ends of other 2+ year streaks with the 50-day above the 200-day led to mixed returns.

If we relax it to the first cross in a year, then returns had a negative bias.

It wasn't great for stocks, either.