The Death Cross in Gold Looks Like Noise

Wed, Feb 20, 2013 | Jared Woodard

Blog, Market Commentary

Whenever some slowish moving averages cross each other for a major asset class, you read headlines like this:

Source: MidnightTrader, TD Ameritrade

Now, there are plenty of reasons not to be bullish about gold. I discussed some of those reasons a few weeks ago, and the May strangle mentioned there has returned about 0.50x the capital risked in the interim.

But the “death cross” idea is not one of those reasons. Here are the simple cumulative returns (not compounded, no transaction costs), daily returns, and drawdowns for a 50-day / 200-day moving average cross strategy on GLD since 2005.

Source: Yahoo!

Risking a 40% maximum drawdown and 10% daily return swings doesn’t seem worthwhile to me given the sloppiness of the equity curve. Being willing to sell or even short My Preciousss is better than storing physical bars in the cellar, I guess.

Implied volatility in gold is finally perking up, but I won’t be interested in selling much ATM premium below 20%.

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Jared Woodard specializes in trading volatility as an asset class. With over a decade of experience trading options and other volatility products ... Read More


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