Commodity · Global · ETFs, funds, futures · Monthly · Global Free

Gold Market Timing

Academic paper

Tactical Asset Allocation to Gold

AuthorsRyan M Daly

Institute

Goldman Sachs (United States)
?AYCO/Goldman Sachs

Paper linkhttp://papers.ssrn.com/sol3/papers.cfm?abstract_id=783187

Strategy in a nutshell

Use Fed model: buy gold when stock E/P ≥ 1.15 × 10-year bond yield; rebalance monthly based on updated signals.

Economic rationale

Expected inflation lowers equity returns; Fed model signals undervaluation prompt a shift to gold, exploiting periods when stocks appear overpriced relative to bonds.

Backtest performance

Annualised return31%

Volatility29.63%

Beta-0.006

Sharpe ratio0.91

Sortino ratio0.238

Win rate100%

Full Python code

1import data_tools
2from AlgorithmImports import *
3class GoldMarketTiming(QCAlgorithm):
4def Initialize(self) -> None:
5self.SetStartDate(2000, 1, 1) 
6self.SetCash(100000)
7self.leverage: int = 5
8# United States Government 10-Year Bond Yield
9self.bond_yield: str = "US10YT"
10self.AddData(data_tools.QuantpediaBondYield, self.bond_yield, Resolution.Daily)
11# S&P 500 Earnings Yield. Earnings Yield = trailing 12 month earnings divided by index price 
12self.earnings_yield: str = "SP500_EARNINGS_YIELD_MONTH"
13self.AddData(data_tools.QuantpediaMonthlyData, self.earnings_yield, Resolution.Daily)
14# Gold Prices (Daily) - Currency USD (All values are national currency units per troy ounce)
15self.gold: str = "CME_GC1"
16data: Securities = self.AddData(data_tools.QuantpediaFutures, self.gold, Resolution.Daily)
17data.SetLeverage(self.leverage)
18data.SetFeeModel(data_tools.CustomFeeModel())
19# Custom chart.
20yieldPlot: Chart = Chart("Yield Plot")
21yieldPlot.AddSeries(Series("Bond Yield", SeriesType.Line, 0))
22yieldPlot.AddSeries(Series("Earnings Yield", SeriesType.Line, 0))
23self.AddChart(yieldPlot)
24
25def OnData(self, data: Slice) -> None:
26custom_data_last_update_date: Dict[Symbol, datetime.date] = data_tools.LastDateHandler.get_last_update_date()
27# monthly rebalance
28if self.earnings_yield in data and data[self.earnings_yield]:
29    if self.Securities.ContainsKey(self.bond_yield) and self.Securities.ContainsKey(self.gold):
30        by_data = self.Securities[self.bond_yield].GetLastData()
31        gold_data = self.Securities[self.gold].GetLastData()
32    
33        if by_data and gold_data:
34            if self.Time.date() <= custom_data_last_update_date[self.bond_yield] \
35                and self.Time.date() <= custom_data_last_update_date[self.gold]: 
36                # Update custom chart.
37                self.Plot("Yield Plot", "Bond Yield", self.Securities[self.bond_yield].Price)
38                self.Plot("Yield Plot", "Earnings Yield", self.Securities[self.earnings_yield].Price)
39            
40                # Buy gold if E/P is higher than the bond yield and their ratio is at least 2.
41                # NOTE: Ratio of 1.15 in paper is not used due to low number of positions opened.
42                if self.Securities[self.earnings_yield].Price > self.Securities[self.bond_yield].Price * 1.15:
43                    self.SetHoldings(self.gold, 1)
44                else:
45                    self.Liquidate()
46            else:
47                self.Liquidate()
48if self.Securities.ContainsKey(self.earnings_yield):
49    ey_data = self.Securities[self.earnings_yield].GetLastData()
50    if ey_data:
51        if self.Time.date() > custom_data_last_update_date[self.earnings_yield]:
52            self.Liquidate()
53            return