ROTATION STRATEGY IN S&P 500 AND GOLD (SPY & GLD) – SECTOR BACKTEST 💹

When the S&P 500 and gold ratio is above its moving average, ie. when stocks are performing better than gold, we are long S&P 500 the coming month. When the ratio falls below the moving average we switch to gold. Pretty simple, but as it turns out, it works pretty well.

We backtest the following trading rules:

➨ If the S&P 500 and gold ratio (S&P 500 divided by the gold price) is above its 20-month simple moving average, we are long the S&P 500 from the close of the month until next month’s close.

➨ If at next month’s close the S&P 500 and gold ratio is below its moving average, we sell the S&P 500 and buy gold for the next month.

Rinse and repeat at the close of every month. We tested from 1985 until July 2020.

The ratio and its moving average looks like the image shown below.

Gold or the S&P 500, which asset class is contributing the most to the overall performance? We explain here >>

https://www.quantifiedstrategies.com/rotation-strategy-in-gold-and-sp500/