I am thinking I will make this a regular piece, or at least as regular as the data or news warrants. Now before I get into the details, I wanted to preface my comments by stating that I want to remain objective, but the monkey brain evolution gave me is quite surprised at how well the model (on the basis of one real-time call, because one is a trend) has worked. Either way, I will proceed with the results of my gold/precious metal stock timing model and provide some insight into the current results.
If you remember, the timing model I developed uses standard statistics on the price of gold relative to money supply and compares that to the price of precious metal stocks. I had detailed this model in past posts (found here and here). Using this relationship, I had stated that gold stocks looked attractive back in late July. As blind luck with have it, my original call heralded the near-term bottom in gold stock prices, as the Phily Gold/Silver Stock Index (ticker XUA) rallied by more than 10% from July 24th through yesterday's close.
Now that I got the self-congratulations out of the way. You may be asking, what is the model saying now. Well, the price appreciation of gold stocks has reduced their attractiveness to some degree.
I show the graphical presentation of the model above. Generally speaking and on average, a lower reading of the Z-score would indicate better appreciation going forward. On July 23, the z-score on the model was -1.11. Following the recent appreciation in gold, the z-score has increased to about -0.5. In a historical context, a reading of -0.5 or below has also provided decent return potential. However, the statistics show that as the z-score approaches the 0 level, the signal becomes less robust.
I think it is a worthwhile exercise to look at the technicals of gold and gold stocks.
The Gold Trust spider (ticker GLD) is bumping up against the 200-day moving average while volume is almost non-existent relative to the average. The A/D line has also been in decline since peaking at July 27th. As for the GDX (Market Vectors Gold Miner ETF) is overbought on the stochastics while the volume on the upside has been falling off since August 1st. I would not be surprised to see gold and gold stocks consolidate the gains. All else being equal, I would consider buying into any consolidation, but that would also be predicated on the relationship between gold and money supply.
If you remember, the timing model I developed uses standard statistics on the price of gold relative to money supply and compares that to the price of precious metal stocks. I had detailed this model in past posts (found here and here). Using this relationship, I had stated that gold stocks looked attractive back in late July. As blind luck with have it, my original call heralded the near-term bottom in gold stock prices, as the Phily Gold/Silver Stock Index (ticker XUA) rallied by more than 10% from July 24th through yesterday's close.
Now that I got the self-congratulations out of the way. You may be asking, what is the model saying now. Well, the price appreciation of gold stocks has reduced their attractiveness to some degree.
I show the graphical presentation of the model above. Generally speaking and on average, a lower reading of the Z-score would indicate better appreciation going forward. On July 23, the z-score on the model was -1.11. Following the recent appreciation in gold, the z-score has increased to about -0.5. In a historical context, a reading of -0.5 or below has also provided decent return potential. However, the statistics show that as the z-score approaches the 0 level, the signal becomes less robust.
I think it is a worthwhile exercise to look at the technicals of gold and gold stocks.
The Gold Trust spider (ticker GLD) is bumping up against the 200-day moving average while volume is almost non-existent relative to the average. The A/D line has also been in decline since peaking at July 27th. As for the GDX (Market Vectors Gold Miner ETF) is overbought on the stochastics while the volume on the upside has been falling off since August 1st. I would not be surprised to see gold and gold stocks consolidate the gains. All else being equal, I would consider buying into any consolidation, but that would also be predicated on the relationship between gold and money supply.
No comments:
Post a Comment