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I saw today that Gold hit a new high for the 2012, so that got me thinking about gold strategies. So I modified the simple buy and hold approach, and incorporated a simple long-mid term trading strategy for gold using only the price change of gold. For my example I will be using data from SPDR Gold Trust (NYSEARCA:GLD), the strategy would also work for other gold ETFs like the ishares Gold Trust (NYSEARCA:IAU), ETFS Physical Swiss Gold Shares (NYSEARCA:SGOL), or for those people who like holding the physical metal over an ETF.

For my example I started with buying GLD on its inception date, and after that the conditions to add to or cut back the position are as follows:

Buy Condition

The percentage price change of the GLD over the last 30 trading days has been less than or equal to -12%.

When that condition is met purchase 100 shares of GLD.

Sell Condition

The percentage price change of the GLD over the last 30 trading days has been greater than 20%.

When this condition is met sell 50% of the position.

Results

In the table below are the trades that would have been made if the above strategy was followed.

Action

Date

Price

Shares

Running Share Total

Buy

11/18/2004

44.38

100

100

Sell

5/2/2006

66.55

-50

50

Buy

6/13/2006

55.92

100

150

Buy

4/29/2008

85.81

100

250

Buy

8/14/2008

79.35

100

350

Buy

8/20/2008

80.06

100

450

Buy

10/29/2008

74

100

550

Buy

11/17/2008

72.65

100

650

Sell

12/26/2008

85.6

-325

325

Buy

4/6/2009

85.27

100

425

Sell

8/22/2011

184.59

-215

210

Buy

10/4/2011

157.64

100

310

Buy

10/20/2011

157.77

100

410

Buy

12/28/2011

151.03

100

510

Below are two tables; one showing the sold positions and one showing the remaining position.

Also, below is the cost basis for the remaining 510 shares of the position, and to calculate it I used the FIFO method (First in First Out) meaning that the first shares I bought were the first ones I sold.

Sold Positions

Buy Price

Sell Price

Shares

Profit/Loss

44.38

66.55

50

1108.5

44.38

85.6

50

2061

55.92

85.6

100

2968

85.81

85.6

100

-21

79.35

85.6

75

468.75

79.35

184.59

25

2631

80.06

184.59

100

10453

74

184.59

90

9953.1

Total cost of sold Positions

41212.00

Total sale value of sold Positions

70834.35

Profit on Sold Positions

29622.35

% Gain on sold Positions

71.88%

Remaining Position

Cost /Sh

Shares

Current Price

123.87

510

172.94

Total Cost of remaining Position

63176.00

Total sale value of remaining Position

88199.4

Profit on remaining Position

25023.40

% Gain on Remaining Position

39.61%

Cost Basis

Price

Shares

Cost

74

10

740

72.65

100

7265

85.27

100

8527

157.64

100

15764

157.77

100

15777

151.03

100

15103

Cost Basis

123.87

Observations

The strategy did well for picking spots to buy gold that were near to the short-term low in gold. Also, the sell condition of having 20% in a 30-day trading period worked very well as signaling a short-term top, to lighten up the position. Also, there were only 14 total trades over just over a seven-year period, which I think is good instead of just buying and holding.

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

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