We have noticed gold back in the news reading about renewed central bank purchases at the same time as record COMEX short positions. The popular SPDR Gold Shares Fund (GLD) has experienced huge outflows in our new low tail risk world and is down about as much as stocks are up this year. Performing even worse is our old darling Market Vectors Gold Miners Fund (GDX) down almost 40% in 2013 and worse than that is her little sister Market Vectors Junior Gold Miners Fund (GDXJ). Our predictive reward models do not evaluate commodity funds like GLD but Quant ranks the latter two at 4th and 7th place today. GDX was the single worst call our models have made so we will forgive your skepticism but feel compelled to report the new rankings.
We say new rankings because GDX fell out of the top 100 in early April, only days after its last of many 10 Green Diamond days, and GDXJ has never seen the top 10 until today. Both funds experienced high volume selloffs culminating on April 17th but traded lower until their most recent bottoms on May 17th. Since that date however both are outperforming the stock market. A week and a half does not make a trend but both funds enjoyed big jumps in their technical scores overnight from the single digits to above 47 for each. Sentiment has been bearish with the more liquid GDX scoring above 80 but little sister GDXJ is also elevated at 73.9. If you sort our Quant page by Fundamental Scores you will see each of them in the top 10 scoring above 80. GDX ranks higher and gets a better Green Diamond Reward Rating of 9.13 to GDXJ’s 8.73 and it also has lower risk at 5.4 compared to 6.57, each represents significantly higher risk than the average equity ETF as does GLD’s 5.51 Risk Rating.
With Japan’s Nikkei sustaining another multi handle move down overnight maybe the low tail risk premise is misplaced. Often called a fear gauge, gold has been a good diversifier for those looking for non-correlated assets in our exuberant markets and we noticed something else. Looking at a chart of 2008’s crash we see that gold broke down prior to equities in the spring and summer and held up better when the meteor hit in the fall. If you have full faith in Bernanke and Kuroda disregard this as another of Quant’s rare errors but if risk is on your radar this may be an opportune time to put on one of the all time classic hedges.