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 (GLD), the strategy would also work for other gold ETFs like the ishares Gold Trust (IAU), ETFS Physical Swiss Gold Shares (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.
