Daniel Ghali, Commodity Strategist at TDS, point out that the strategy of trading a reversion in gold has been a losing one historically.
Key Quotes:
“With spot prices challenging the $1500/oz range, many market participants may be tempted to lock in their gains or fade the sharp rally. Using a conflux of mean-reversion signals, we show that fading overshoots in gold has historically been a fool’s game.”
“We generate some 30 different mean-reversion signals by combining some six different indicators (including Bollinger bands, Stochastics, RSI, CCI, Ultimate Oscillator and the Chande Momentum Oscillator), each with five different parameter sets. Combining the signals into a congruence index, we generate the hypothetical returns of trading overshoots in gold by initiating long/short positions according to the balance of mean-reversion signals pointing long/short.”
“Trading mean-reversion signals in gold would have been a losing strategy. We recognize that positioning is extremely lopsided, which implies risks of a correction should money managers rush to the exits, but standing in front of this runaway train may still be a fool’s game.”
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