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Strategies & Market Trends : Ride the Tiger with CD

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From: Taikun	8/21/2006 6:05:48 PM
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How its done: The most useful EMA indicator for trading gold over nearly 32 years was to buy gold when the U.S. dollar crosses below its 7-week EMA and to sell gold when the dollar crosses above its 7-week EMA. This inverse strategy would have gained more than 889% before trading costs and without any leverage. Nearly 52% of the 282 trades would have been profitable, which is pretty good for a trend-following strategy. Gold moves directly with the trend of the Swiss franc (using a 5-week EMA crossover) and the trend of crude oil (using a 12-week EMA crossover). These make good intuitive sense: Gold should go up when the Swiss franc (a hard currency with gold backing) and crude oil (another inflation-sensitive commodity) are rising. My testing found an inverse relationship with gold and 10-year T-note yields. This might be spurious, however, because it lacks logic and has been unprofitable since 2003, as 10-year interest rates and gold both rose together. I also doubt the validity of trading gold based on the DJIA or S&P 500. Stocks are not always a good hedge against inflation, and this indicator's Cumulative Equity Curve is too erratic to be reliable. marketwatch.com; USD has been below 7 week ema for several weeks: stockcharts.com Conclusion: BUY GOLD WTI Crude has been below 12 week ema for several weeks, but just started rising: stockcharts.com Conclusion: BUY GOLD Swiss Franc startd rising 2 weeks ago stockcharts.com Conclusion: BUY GOLD The latest signal is WTI Crude. If you waited for all three you'd have been out of gold last week.

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