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Note: these strategies for viewing information only, they are not for sale, nor to solicit or suggest trading activity.


Cross market analysis point the way for gold

gold is money

5 October 2023

Although the US-Dollar is not money, and nor is Gold currency, they are direct competitors. Nearly always, the gain in one is the loss in the other. The US-Dollar is most strongly driven by its rate of return (i.e. US interest rates). Gold has both industrial, and social demand. As well it is a store of value providing intrinsic insurance against inflation and other forms unpleasant developments. A simplified model is where the two instruments form the two sides of a sea-saw where some of the most consequential economic factors come together. While we can hedged them profitably against one another in a traditional pair, here we focus on only taking positions in Gold using its relationship to the inverse of the US-Dollar index. This works especially well when the central banks actions are in focus and the markets are sensitized to the interest rates. Since our long term view is that the said sensitivity (and with it. moderately high rates. and inflation), will be with us for a number of years to come, we will follow the subtle lead of the USD to take un-hedged positions in Gold.

Make no mistake in the treachery of the said “lead” in the USD; it can be fickle and indeed subtle. Our model can tease out such relationship and even more importantly, it can dynamically adjust to its variations to a sufficient degree to generate remarkable profits.

Below we see the model’s long positions the past decade. As of this writing (2023-Oct-05) we have generated a Profit Factor=7.1 and 76% of signals have been profitable (see the corresponding uncompounded equity curve below, unit size=10 shares of GLD).

the short side

On the short side (of Gold) the pair has a slightly different relationship. In fact the short side seems better suited for our approach and profitability is more robust. Over the last decade (as of this writing on 2023-Oct-05) we have generated a Profit Factor=8.4 and 73% of signals have been profitable (see equity curve below).

Shorter time scale

The GLD-USD model works well on the Daily scale as well, and the performance is especially good on the short side (contact us for details). However, here we show our currently preferred model of Gold vs. the $XAU miners’-index. Arguments can be made such as the miners (the “commercial” side of futures open-interest) can be the nexus of information on the balance in the supply and demand, but the discussion can get intractable and subjective. The proof of a model is its profitability; we seem to do well here as well.

Uncompounded equity for unit size=10 shares of GLD per entry.

The short side of daily gld

As alluded, for complex reasons, the short side is usually the better performer: