In this post, we look at how you can use the 12-month (250-day) moving average to outperform the gold price. Gold spends most of the time going nowhere, and it seems the 12-month moving average does a great job in capturing trends in gold. Trend following strategies in gold has worked well in the past.
Gold tends to move in leaps and bounds, and being “idle” for long periods of time, something that bodes well for trend-following strategies.
We only have monthly prices in our database, and we backtested by using a 12-month simple moving average strategy. The results from the backtest are pretty good (Image shown below).
When the gold price is above the 12-month (250-day) moving average, we are long. When the gold price is below the average, we stay on the sidelines in cash. Such a simple system beats buy and hold by a wide margin. 100 000 invested in 1971 grew to 10 million by using the 12-month moving average system while buy and hold ended at only 4 million.
You can find more info about this trading strategy here:
https://www.quantifiedstrategies.com/gold-moving-average-strategy/