SPDR Gold Trust Driven By Low Rates And Strong Momentum

Ultra-low interest rates in Europe and Japan make US bonds look attractive in comparison, which keeps rates low in the United States too. It is all relative, and as long as interest rates remain at amazingly low levels all over the world, it is hard to imagine interest rates in the U.S. rising too much.

An Uptrend With Vigorous Momentum

It is one thing to say that low real yields can be a key driver for SPDR Gold Trust and a very different thing to see the thesis playing out well in the present time. The ETF has just made new highs for the year, so the price is in an uptrend, no doubt about that.

However, in order to assess the timing in an investment, it can be important to move beyond the more subjective visual analysis and incorporate indicators based on hard quantitative data as opposed to opinions and interpretations.

The Asset Class Rotation Strategy is a quantitative strategy that rotates between 9 ETFs that represent some key asset classes.

  • SPDR Gold Trust for gold
  • Vanguard Real Estate (VNQ) for real estate.
  • SPDR S&P 500 (SPY) for big stocks in the U.S.
  • iShares Russell 2000 Index Fund (IWM) for small U.S. stocks.
  • iShares MSCI EAFE (EFA) for international stocks in developed markets.
  • iShares MSCI Emerging Markets (EEM) for international stocks in emerging markets.
  • Invesco DB Commodity Index Tracking (DBC) for a basket of commodities.
  • iShares 20+ Year Treasury Bond (TLT) for long-term Treasury bonds.
  • iShares 1-3 Year Treasury Bond (SHY) for short-term Treasury bonds.

In order to be eligible, an ETF has to be in an uptrend, meaning that the current market price is above the 10-month moving average. Among the ETFs that are in an uptrend, the system buys the top 3 with the highest relative strength over 3 and 6 months.

The main rationale behind this strategy is actually quite simple, the strategy wants to buy only the asset classes that are in an uptrend. Among the asset classes that are in an uptrend, it looks for the ones with superior risk-adjusted performance in comparison to the other asset classes.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 

Disclaimer: I wrote this article myself, and it expresses my ...

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