vrijdag 11 januari 2013

Correlation: The Ultimate Tool to Predict Gold and Gold Miners Price Swings

It's amazing, every day I learn something new. Today I present another very reliable tool to predict tops and bottoms in the gold price and the gold miners.

The Bernstein Daily Sentiment Index for gold. Apparently, when the index goes below 30, we have a bull alert on gold. Similarly, when the index goes above 70, we have a bear alert on gold.

The problem is, it isn't free, you have to pay to follow this index here: http://www.trade-futures.com/.
Chart 1: Bernstein Daily Sentiment Index
Luckily, Bloomberg has something similar which is free and can be accessed here. On Chart 2 we can see that sentiment is at rock bottom for the gold price, that means we will see a surge in gold in the next few months.

Chart 2: Bloomberg Commodity Sentiment Gold Bullish Readings
To confirm that the gold price is nearing a bottom, we can look at the daily sentiment index for gold miners on the site Stockcharts.com. The ticker is $BPGDM (Chart 3). As you can see, the gold mining sentiment is approaching a bottom under 30 and this should be a positive indicator for the gold mining industry.

Chart 3: BPGDM (Stockcharts.com)
To prove that the correlation works I will compare Chart 3 with the gold miners ETF (GDX) Chart 4. We notice that each time the index goes below 30 on BPGDM, we have a short term bottom in the GDX. Every time the BPGDM index goes above 70, we have a top in the GDX.

Chart 4: Gold Miners ETF (GDX)
The conclusion is that we have a very powerful tool here to mark tops and bottoms in both the gold price and the gold mining industry valuation. I would use these tools to execute short term trading. For example, every time the index goes below 30, you buy the respective security (gold or gold miners) and every time the index goes above 70, you sell the respective security. It's as simple as that!

2 opmerkingen:

  1. Global X Gold Miners Fund only includes companies that derive a high percentage of revenues from gold mining.

  2. Hi Albert,

    Great blog and studies you have here :-).

    I was wondering: since you published this article, has the correlation between gold price and the Bernstein Daily Sentiment Index kept working over and over again?