What 'Cheap' Gold May Mean for the S&P 500

Historically, low gold prices have translated into above-average gains for the SPX

Jul 22, 2015 at 3:12 PM
facebook twitter linkedin


Gold has been skimming multi-year lows for the past few days, and mining stocks haven't done any better. But what might that mean for the broader market? With that question in mind, I decided to enlist the help of Schaeffer's Senior Quantitative Analyst Rocky White to see if he could shed any light on the implications of "cheap" gold for the S&P 500 Index (SPX).

Below, you'll see a chart that shows how the SPX has performed across various time frames, following at least four-year lows on gold -- a signal we got last Friday, for the 10th time since 1980. In order to qualify, signals had to be at least six months apart.

Looking at the data, four-year lows have tended to be bullish for the SPX -- especially over the long term. In the month following the last nine signals, the SPX averaged a gain of 1.6%, and was positive two-thirds of the time. By contrast, the index's anytime one-month return is just 0.8%, and positive 62% of the time.

Even more impressive, going out to the six- and 12-month columns, the SPX has been positive 100% of the time following prior signals, with an average advance of 8.3% and 18.2%, respectively. By comparison, over a typical six-month window, the SPX is positive 73% of the time, with an average gain of 5%; and over 12 months, it's higher 78% time, with a typical advance of 10%.

150722goldlows1

The last time we saw a four-month low in gold was last November, and as the chart below demonstrates, the returns have been positive once again -- with the one-year result still to be determined. Interestingly, prior to that November signal, we hadn't seen a four-year low in gold for more than 15 years -- by far the longest span we've observed over roughly 35 years' worth of data.

150722goldlows2

 

 

 

These investors are using the market's volatility to their advantage and scoring triple-digit gains on many of their trades.

Even in today's sideways bear market, this trading strategy has continued to provide consistency and profitability to a small group of investors. By using this approach, these traders are removing directional risk and still hitting triple-digit returns. If you want access to this strategy, and lower risk with higher returns sounds good to you, then don't wait another minute.

Join us now to receive our next trades the moment they come out!

 

Common mistakes options traders make
 


 


 
Special Offers from Schaeffer's Trading Partners