Two Steps Forward, One Step Backtest
The gold spot price ($/oz) (“Gold”) has experienced a healthy return year-to-date 2012, increasing 10.56% as of November 21, 2012. Many investors would believe that the gold miners, measured by the NYSE Arca Gold Miners Index (“GDM”), would perform somewhat similarly. However, GDM has decreased by -7.37% over the same period.
The diverging Gold and GDM returns have caused the Gold/GDM ratio to increase to 1.306 as of November 21, 2012.
Is there an opportunity to gain from trading Gold or GDM by understanding patterns in the Gold/GDM ratio?
Gold Spot Price ($/oz) and NYSE Arca Gold Miners Index Ratio, 50- and 200-Day Moving Averages: 1993 – 2012
Source: Bloomberg, between September 17, 1993 and November 21, 2012. (“Evaluation Period”) 1) First historical high Gold/GDM ratio, November 17, 2000. 2) Second historical high Gold/GDM
ratio, October 27, 2008.
The Gold/GDM ratio was at its first historical high value of 1.4717 on November 17, 2000, during the Evaluation Period. Subsequently, the Gold/GDM ratio 50-day moving average crossed below the 200-day moving average on March 6, 2001. The Gold/GDM ratio 50-day moving average did not cross back above the 200-day moving average until November 14, 2002. Gold increased by 22.05% and GDM increased 86.55% between March 6, 2001 and November 14, 2002.
A similar Gold/GDM ratio peak was observed again on October 27, 2008, during the Evaluation Period, where the Gold/GDM ratio was 1.6228. Afterward, the Gold/GDM ratio 50-day moving average crossed below the 200-day moving average on March 30, 2009. The Gold/GDM ratio 50-day moving average did not cross back above the 200-day moving
average between Finally, t Gold/GD below th Gold Sp Source: B How the Percent Gold Spo Increase Decrease Increase M GDM Increase Decrease GDM Decrease If you be following H H until Janua March 30, the Gold/GD M ratio reac e 200-day m pot Price ($ Bloomberg, b e Gold/GD Change in th ot Price ($/oz More than More than elieve that t g pair trades HBD: 200% HGU: 200% ry 29, 2010 2009 and Ja DM ratio rea ch another p moving ave $/oz) and N etween Septe M Ratio is he z) Percen Arca Decreas Increase Increase Increase Decreas Decreas he Gold/GD s: leveraged in leveraged e 0. Gold incre anuary 29, ched anothe peak? The G rage on Oct NYSE Arca ember 17, 19 Affected t Change in t Gold Miners se e e e More than G se se More than DM ratio will nverse expo exposure to eased by 18 2010. er high of 1 Gold/GDM ra tober 17, 20 Gold Mine 993 and Nove the NYSE s Index In D In Gold D D Gold In decrease, osure to gold the S&P/TS .02% and G .4177 on M atio 50-day 012. ers Index V ember 21, 20 Effect on Gold/GDM R ncrease Decrease ncrease Decrease Decrease ncrease you could c d bullion SX Global Go GDM increas ay 15, 2012 moving ave Values: 199 012. n Ratio Po HBU HBD HBU HBU HBD HBD consider one old™ Index sed by 12.08 2. Did the erage crosse 93 – 2012 otential Trad U and HGD D and HGU U and HGU U and HGU D and HGD D and HGD e of the 8% ed des
HBU: 200% leveraged exposure to gold bullion
HGU: 200% leveraged exposure to the S&P/TSX Global Gold™ Index HBD: 200% leveraged inverse exposure to gold bullion
HGD: 200% leveraged inverse exposure to the S&P/TSX Global Gold™ Index If you believe that the Gold/GDM ratio will increase, you could consider one of the following pair trades:
HBU: 200% leveraged exposure to gold bullion
HGD: 200% leveraged inverse exposure to the S&P/TSX Global Gold™ Index HBU: 200% leveraged exposure to gold bullion
HGU: 200% leveraged exposure to the S&P/TSX Global Gold™ Index HBD: 200% leveraged inverse exposure to gold bullion
HGD: 200% leveraged inverse exposure to the S&P/TSX Global Gold™ Index
S&P/TSX Global Gold™ Index correlation of daily returns with the NYSE Arca Gold Miners Index was .9291 between September 29, 2000, and November 21, 2012. The inception date of the S&P/TSX Global Gold™ Index inception date was September 29, 2000. Do you want to try this trade? Use the Horizons Trading Simulator to place hypothetical trades with simulated funds using real market data.
The views expressed herein are of a general nature and this Trade Idea is not and should not be considered as advice to purchase or to sell mentioned securities. Before making any investment decision, please consult your investment advisor or advisors.
ETF Performance as of October 31, 2012
ETF 1 mo (%) 3 mo (%) 6 mo (%) YTD (%) (2012) 1 yr (%) (%) 3 yr Inception Since (%)
Inception Date Management Annual Fee HBU1 -5.38 13.39 4.06 14.37 -7.61 29.17 17.92 January 22, 2008 1.15% HBD1 4.92 -13.93 -10.54 -22.80 -8.39 -34.99 -32.98 January 22, 2008 1.15% HGU1 -1.22 43.80 19.14 -12.94 -30.59 -3.42 -11.91 June 26, 2007 1.15% HGD1 -1.36 -35.28 -30.97 -14.27 -0.19 -28.48 -51.71 June 26, 2007 1.15%
1This ETF does not seek to meet its investment objective over any period other than daily
Wade Guenther, CFA ETF Research Analyst
Horizons Exchange Traded Funds
HBU Investment Objective
The Horizons BetaPro COMEX® Gold Bullion Bull Plus ETF (“HBU”) and the Horizons BetaPro
COMEX® Gold Bullion Bear Plus ETF (“HBD”) seek daily investment results equal to 200%
the daily performance, or inverse daily performance, of COMEX® Gold Bullion, before fees
and expenses. HBU and HBD are denominated in Canadian dollars, as the U.S. dollar exposure of the underlying index is hedged daily.
HGU Investment Objective
The Horizons BetaPro S&P/TSX Global Gold Bull+ ETF (“HGU”) and the Horizons BetaPro S&P/TSX Global Gold Bear+ ETF (“HGD”) seek daily investment results equal to 200% the daily performance, or inverse daily performance, of the S&P/TSX Global Gold Index™, before fees and expenses. The Index consists of securities of global gold sector issuers listed on the TSX, NYSE, NASDAQ and AMEX
The views expressed herein may not necessarily be the views of AlphaPro Management Inc., Horizons ETFs Management (Canada) Inc. or Horizons Exchange Traded Funds Inc. All comments, opinions and views expressed are of a general nature and should not be
considered as advice to purchase or to sell mentioned securities. Before making any investment decision, please consult your investment advisor or advisors.
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