This Golden Ratio Strategy has been built around the interplay the indices have with gold during bull and bear markets. As a default harbour against inflation, we have identified and quantified a statistical relationship between the two.
One constant trend we see repeated time and time again is the way people treat gold as a hedge during 'bad times'. That is, when the markets are under performing or are bearish, there appears to be a migration from the stock market into precious metals as a safe haven until we see a reversal. This strategy looks to take advantage of this using a proprietary ratio between the S&P500 and Gold to try to be on the right side of strongest trend.
Starting balance of $100,000 USD
The Golden Ratio Strategy works by creating a unique ratio between the price of gold and the S&P 500 index. This ratio looks at multiple inputs including weighted averages over the short, medium and long term, growth of each respective market as well as a few custom indicators. Once this ratio is calculated, we then run a modified moving average across it to determine which of the two asset classes is the stronger play.
Due to the nature of this strategy, this has a long-term outlook, only rebalancing once a month, and possibly only switching between the two asset classes a few times a decade.
By switching from one asset to the other during bull and bear markets, over the 50 years, this has been tested, it has outperformed both a buy and hold strategy of the major indices, and a mixed portfolio of gold and indices.
As this relationship between the two instruments isn't perfect, there are times when both the indices and gold are bearish. As such, this strategy has a mechanism that allows it to go to cash until such a time where a clearer outcome is observable.