Objective research to aid investing decisions

Value Investing Strategy (Strategy Overview)

Allocations for October 2020 (Final)
Cash TLT LQD SPY

Momentum Investing Strategy (Strategy Overview)

Allocations for October 2020 (Final)
1st ETF 2nd ETF 3rd ETF

Gold

Can investors/speculators use gold as a hedge for equities or as a general safe haven? Does it hedge against inflation? These blog entries relate to gold as an asset class.

Real Commodity Prices as Valuation Aids

Is there a simple way to tell whether a commodity is overvalued or undervalued? In his May 2014 presentation package entitled “Commodity ‘CAPE Ratios'”, Claude Erb looks at long-term real commodity prices as valuation “crutches” to estimate when commodities are overvalued and undervalued. He provides examples relating real commodity prices to future long-term (10-year) real commodity returns. He employs the U.S. consumer price index (CPI) for inflation adjustment. Using gold price since January 1975, the S&P GSCI Index since January 1970, corn price since April 1965, crude oil price since March 1983 and contemporaneous CPI data through April 2014, he finds that: Keep Reading

Gold Futures or Leveraged ETFs?

Should investors seeking leveraged positions in gold prefer futures or leveraged exchanged-traded funds (ETF)? In their August 2014 paper entitled “Price Dynamics of Gold Futures and Gold Leveraged ETFs”, Tim Leung and Brian Ward compare the price evolutions of spot gold, gold futures and leveraged gold ETFs. They use the XAU-USD gold-U.S. dollar exchange rate as the spot gold price. Among gold futures, they consider maturities from nearest month to one year. Among ETFs, they consider the unleveraged iShares GLD, the ProShares 2X UGL, the ProShares -2X GLL, the VelocityShares 3X UGLD and the VelocityShares -3X DGLD. They also construct static and dynamic portfolios of gold futures in efforts to replicate spot gold and leveraged gold price behaviors. Using recent gold futures and gold ETF prices through 7/14/2014, they find that:

Keep Reading

Gold as Hedge, Safe Haven and Downside Risk Protection

Is a position in gold consistently effective in protecting a portfolio of conventional assets? In the August 2014 preliminary version of their paper entitled “Does Gold Glitter in the Long-Run? Gold as a Hedge and Safe Haven Across Time and Investment Horizon”, Don Bredin, Thomas Conlon and Valerio Potì examine the hedging, safe-haven and downside risk reduction properties of gold relative to stocks and bonds in four major markets and across short and long investment horizons. In their examination, they employ wavelet analysis which enables localization of asset class interactions over time and across investment horizons. They apply this analysis to definitions of a hedge (safe haven) as an asset that is uncorrelated or negatively correlated with another asset or portfolio on average (in times of market stress or turmoil). They use a breakpoint of about a month to separate short-run from long-run behaviors. Using daily data for the spot price of gold, equity indexes and 10-year government bond indexes in local dollars for the U.S., UK, German and Japanese markets during January 1980 through December 2013 (except Japanese bond data commences January 1984), they find that: Keep Reading

Gold vs. Gold Miners

How do gold and gold miner stocks interact? In his February 2014 presentation package entitled “A Golden Bet: Gold Miner Equities versus Gold”, Claude Erb examines the long-run relationship between gold and a gold miner stock indexes. He relies mostly on in-sample regressions over a 20-year sample period. Using monthly gold price and gold miner index level during September 1993 through October 2013, he finds that: Keep Reading

Speculation the Dominant Gold Price Driver?

Are gold price movements predictable? In his December 2013 paper entitled “Gold. The Bursting of a Bubble?”, Tim Verheyden assesses gold price predictability in two ways. First, he applies an autoregressive integrated moving average (ARIMA) model to assess the value of gold price technical analysis (whether past price behavior predicts future price behavior). Second, he examines interaction of gold price with inflation to assess whether the latter drives the former. Using monthly gold prices and U.S. Consumer Price Index data during January 2001 through September 2013, he finds that: Keep Reading

Explaining the Price of Gold

What factors truly explain movements in the price of gold? In his January 2014 paper entitled “Facts and Fantasies about Gold”, Joachim Klement checks the validity of common explanations for changes in gold price. Specifically, he investigates whether gold price responds to: change in inflation expectation; change in real interest rate; financial crises; changes in currency exchange rates; change in the marginal cost of gold production; central bank gold sales and purchases; and, change in the demand for gold-linked exchange-traded funds (ETF). Using monthly data for gold price and these potentially explanatory factors as available during 1970 through 2013, he finds that: Keep Reading

Comparing Precious Metals as Safe Havens

Are other precious metals more effective than gold as safe havens from turmoil in stock and bond markets? In their September 2013 paper entitled “Time Variation in Precious Metal Safe Haven Status — Evidence from the USA”, Brian Lucey and Sile Li compare and contrast the effectiveness of four precious metals (gold, silver, platinum and palladium) as safe havens from sharp declines in U.S. stocks (the S&P 500 Index) and U.S. bonds (a 10-year U.S. Treasury note index). They define an asset as a safe haven from another if returns of the former exhibit zero or negative correlation with returns of the latter when the latter experiences a sharp drawdown. A safe haven is different from a hedge, which has zero or negative return correlation with another asset or portfolio on average. They calculate returns for precious metals based on a continually rolling position in nearest month futures. They calculate return correlations quarter by quarter and focus on the worst 5% of drawdowns in stocks or bonds. Using daily futures contract prices for gold, silver, platinum and palladium and daily returns for the stock and bond indexes from the first quarter of 1989 through the second quarter of 2013, they find that: Keep Reading

Platinum as an Investment

Is platinum as good as gold? In the September 2013 version of their paper entitled “Analysis of the Investment Potential of Platinum Group Metals”, James Ross McCown and Ron Shaw evaluate the investment value of platinum group metals (platinum, palladium, rhodium, iridium, ruthenium and osmium). Using daily spot prices for platinum group metals, gold and crude oil, daily levels of a broad U.S. stock market index, monthly U.S. consumer and producer price indexes and monthly U.S. industrial production levels during July 1992 through December 2011, they find that: Keep Reading

Gold Price and U.S. Interest Rates

Do recent reactions of gold price to interest rate-related U.S. economic announcements (rising on rate-suppressing news) mean that gold acts like a bond? In their September 2013 paper entitled “What if Gold is a Bond?”, Claude Erb and Campbell Harvey re-examine the relationship between gold price and interest rates as proxied by U.S. government bond prices. Using monthly spot gold price, 10-year U.S. Treasury note (T-note) yield and U.S. Treasury Inflation-Protected Securities (TIPS) yield as available during January 1975 through August 2013, they find that: Keep Reading

Future of the Price of Gold

Will increases in central bank and investor holdings of gold drive its price higher? Or, is the price of gold in bubble territory, portending weak future returns? In the May 2013 update of their paper entitled “The Golden Dilemma”, Claude Erb and Campbell Harvey investigate how investors should treat gold in asset allocation. They consider a range of arguments for owning gold, such as: (1) gold hedges inflation; (2) gold hedges currency decline; (3) gold is attractive when other assets are not; (4) gold is a safe haven in times of crisis; (5) gold is a de facto world currency; and, (6) central banks and investors in aggregate are still underweighting gold. Using gold price in U.S. dollars, the U.S. Consumer Price Index (CPI) and values of several currencies, mostly during January 1975 (the end of the government-fixed gold price era) through March 2012, they conclude that: Keep Reading

Login
Daily Email Updates
Filter Research
  • Research Categories (select one or more)