Introduction
This text develops a price-based macro–monetary mannequin of gold that formally hyperlinks its medium-horizon return dynamics to cross-asset risk-premium configurations. Though gold has historically been conceptualized as a non-yielding inflation hedge or safe-haven asset, modern empirical proof reveals a considerably extra intricate construction: gold’s ahead returns are systematically conditioned by the joint momentum of (i) gold itself and (ii) long-duration U.S. Treasury total-return indices. The alignment of those two alerts seems to encode macroeconomic info—particularly the course of actual rates of interest, the stance and anticipated trajectory of Federal Reserve coverage, and the prevailing international risk-appetite regime.
Motivated by these findings, this examine constructs a unified framework through which the joint gold–Treasury momentum state serves as a compact and economically interpretable indicator of the underlying macro regime. When previous momentum in each gold and Treasuries is constructive, the surroundings is dominated by falling actual yields, rising recession threat, and de facto or anticipated financial easing—a configuration traditionally related to persistently constructive gold extra returns. Conversely, when each alerts are detrimental, the inferred macro regime shifts to 1 characterised by rising actual yields, tightening monetary circumstances, and a rotation into pro-cyclical property, producing a structurally opposed surroundings for gold. By formalizing this mechanism, the article goals to supply a theoretically coherent and empirically sturdy account of gold’s return-generation course of, reconciling disparate strands of the literature on actual charges, safe-haven demand, and multi-asset risk-premium cycles.
Background
A considerable literature paperwork that gold costs are deeply anchored to the extent and trajectory of actual rates of interest, reflecting the intertemporal alternative value of holding an asset with no intrinsic yield. The detrimental relationship between gold and actual yields—empirically documented by Erb and Harvey (2013), Baur and Lucey (2010), and additional corroborated in a spread of inflation-hedging research—types the foundational financial premise of contemporary gold valuation. Intervals of falling actual yields, usually related to dovish financial regimes or deteriorating progress expectations, produce systematic tailwinds for gold; rising actual yields generate the other impact.
Momentum in long-duration Treasuries gives a pure and empirically validated proxy for these real-rate dynamics. Optimistic Treasury momentum corresponds to declining yields (i.e., rising bond costs) and usually alerts accommodative macro circumstances, elevated progress uncertainty, or outright easing. Conversely, detrimental Treasury momentum captures tightening cycles, repricing of period threat, and rising expectations of future progress or coverage normalization. This view is according to the macro-financial interpretation of bond momentum superior by Koijen, Moskowitz, Pedersen, and Vrugt (2018), in addition to the broader cross-asset momentum literature (Moskowitz, Ooi, and Pedersen 2012), which emphasizes the position of slow-moving macroeconomic drift in producing persistent return continuation throughout asset lessons.
Motivation
The novel empirical statement motivating this text is that the interplay—not merely the impartial results—of gold momentum and Treasury momentum types a state variable with substantial explanatory and predictive energy for future gold efficiency. When each gold and Treasuries exhibit constructive medium-horizon momentum, the joint sign identifies a “falling real-rate regime,” according to heightened demand for protected property, elevated recession chance, and an easing-dominant financial surroundings. In distinction, when each exhibit detrimental momentum, the configuration corresponds to a “rising real-rate regime,” steadily related to accelerated progress expectations, coverage tightening, and a scientific rotation towards high-beta, carry-rich, and cyclical property.
This opposed regime—simultaneous detrimental momentum in gold and long-duration Treasuries—is empirically characterised by robust efficiency of pro-cyclical asset lessons similar to broad equities, industrial commodities, worth and monetary sectors, and high-yield credit score, whereas duration-sensitive safe-haven property contract. This phenomenon suits squarely inside the macro-asset-pricing literature, which paperwork that rising actual yields, bettering progress circumstances, and tightened monetary circumstances collectively favor short-duration, growth-sensitive property (see Cochrane 2011; Adrian, Crump, and Moench 2015). The joint gold–Treasury issue thus operates as a compact, economically interpretable macro-regime classifier that distinguishes between easing-dominant, risk-off episodes and tightening-dominant, risk-on episodes.
By explicitly situating gold inside these macro-financial cycles and formalizing the mechanism by which cross-asset momentum reveals latent real-rate regimes, this text contributes a theoretically grounded and quantitatively validated mannequin of gold value dynamics—one which unifies safe-haven demand, opportunity-cost channels, and cross-asset threat sentiment right into a single, coherent framework.
Knowledge
The empirical evaluation attracts on a long-horizon dataset constructed to isolate the dynamic interplay between gold returns and the intermediate- to long-duration efficiency of U.S. Treasuries. The investable asset into account is GLD (SPDR Gold Belief), which serves because the operational proxy for bodily gold publicity. Though portfolio allocations are restricted solely to GLD, the mannequin incorporates the return historical past of IEF (iShares 7–10 12 months Treasury Bond ETF) as an informational variable used to characterize macro-financial regimes and to assemble the joint momentum state central to the empirical framework. ETF information have been pulled from EODHD.com – the sponsor of our weblog. EODHD affords seamless entry to +30 years of historic costs and basic information for shares, ETFs, foreign exchange, and cryptocurrencies throughout 60+ exchanges, out there through API or no-code add-ons for Excel and Google Sheets. As a particular provide, our weblog readers can get pleasure from an unique 30% low cost on premium EODHD plans.
To make sure continuity throughout financial cycles and to keep away from the well-documented biases related to short-sample analyses, the examine employs an prolonged historic dataset spanning 31 December 1969 by 30 September 2025. As a result of GLD and IEF themselves don’t exist throughout this complete horizon, the early portion of the pattern depends on an internally maintained historic reconstruction of gold spot costs and U.S. Treasury total-return indices, engineered to be methodologically according to the trendy ETF devices and sourced from our inside database for bond and gold costs.
Within the remaining, for money, we incorporate the Federal Funds Efficient Price (FEDFUNDS) from the Federal Reserve Financial Knowledge (FRED) repository. The FEDFUNDS collection gives the canonical short-term coverage/cash-rate benchmark used to assemble money returns, to kind cash-adjusted excess-return collection, and to lastly amend the mannequin’s mapping between monetary-policy stance and inferred real-rate regimes.
Methodology
All return collection are computed on a total-return foundation, adjusted for roll mechanics the place relevant, and sampled month-to-month to align with the medium-horizon predictive construction motivating the examine. Momentum elements are calculated utilizing overlapping backward-looking home windows of 1, 3, 6, and 12 months, according to the cross-asset momentum literature and with the empirical mannequin developed herein.
Benchmark
The purchase‑and‑maintain allocation to GLD (GLD B&H) is adopted because the definitive baseline towards which all dynamic and regime‑conditional methods are evaluated. The next determine and desk report the core ex‑submit metrics used all through the paper (annualized efficiency, annualized volatility, Sharpe ratio, most drawdown, and the efficiency‑to‑max‑drawdown ratio), which collectively outline the empirical goal that proposed momentum‑ or macro‑conditioned technique ought to outperform to be thought of economically significant.
Over the again‑take a look at horizon, the GLD purchase‑and‑maintain signifies that, whereas GLD delivers constructive lengthy‑run nominal returns, it does so with substantial realized volatility and episodic, deep capital losses that materially depress threat‑adjusted outcomes.
Consequently, the empirical goal for the mannequin and subsequent buying and selling guidelines is twofold: (i) to protect or modestly enhance lengthy‑run nominal returns whereas (ii) materially lowering realized drawdowns and growing the Sharpe ratio.
This part presents empirical outcomes evaluating whether or not info from different asset lessons, particularly long-duration U.S. Treasury total-return indices, gives incremental predictive energy for future gold returns past that embedded in gold’s personal previous efficiency. Our goal is to evaluate whether or not a multi-asset momentum specification—gold momentum augmented with Treasury momentum—improves the out-of-sample efficiency of buying and selling methods. We systematically study forecast horizons of 1, 3, 6, and 12 months utilizing standardized momentum alerts and consider long-only timing methods for the GLD ETF.
Throughout all workout routines, outcomes are introduced utilizing the next components for every horizon:(i) fairness curves for 4 particular person momentum fashions and their cross-model common;(ii) efficiency analysis tables reporting CAGR, annualized volatility, most drawdown, Sharpe ratio, and Calmar ratio.
1. Baseline: Gold Momentum as a Predictor of Future Gold Returns
We first take into account the canonical specification through which the predictor variable is the previous efficiency of gold itself. For every horizon (1M, 3M, 6M, 12M), we compute a easy long-only timing rule:
Lengthy GLD when previous gold efficiency over the given horizon is constructive,
flat (0% allocation) when the sign is detrimental.
The ensuing 4 fairness curves, together with their easy common, are displayed in Determine 1 (we use a log scale to higher depict appreciation over time). Efficiency statistics are summarized in Desk 1.
According to the prevailing literature on time-series momentum (Moskowitz, Ooi, and Pedersen 2012), we observe that constructive gold momentum is in itself sufficiently predictive of favorable subsequent returns. All 4 horizons and composite common produce statistically important Sharpe and Calmar ratios.
Reverse-Sign Specification
We subsequent consider the contrarian rule—lengthy GLD when gold momentum is detrimental and flat in any other case. Determine 2 and Desk 2 report the outcomes.Throughout all horizons, this specification performs considerably worse, generally with detrimental risk-adjusted returns and pronounced drawdowns. This confirms that the negative-momentum gold regime is especially unfavorable, and that gold’s personal previous underperformance conveys significant details about persistent macro headwinds.
2. Treasury Momentum (IEF) as a Predictor of Gold Returns
We then exchange gold momentum with the previous efficiency of the 7–10 yr U.S. Treasury total-return index (IEF) because the predictive sign for GLD. The buying and selling rule is analogously outlined:
The 4 fairness curves (1M, 3M, 6M, 12M) and their common are proven in Determine 3 (we once more use a log scale); Desk 3 studies efficiency statistics.
Surprisingly—and counterintuitively from a purely macroeconomic-centric perspective—constructive Treasury momentum predicts constructive gold returns. Throughout all horizons, the IEF-based fashions ship Sharpe and Calmar ratios which can be similar to these of the baseline gold-momentum fashions. This discovering is economically according to the speculation that falling yields and accommodative financial circumstances collectively drive constructive gold efficiency, and that Treasury momentum serves as an efficient proxy for the actual price.
Reverse-Sign Specification (IEF Adverse Momentum)
We repeat the train utilizing the contrarian rule—lengthy GLD when IEF momentum is detrimental. Determine 4 and Desk 4 current the outcomes.
Mirroring gold’s personal detrimental momentum regime, detrimental Treasury momentum is related to poor ahead gold efficiency, with returns throughout all horizons low and risk-adjusted metrics inferior. This reinforces the interpretation that an surroundings of rising yields and tightening macro circumstances is systematically opposed for gold.
3. Joint Momentum States: Combining GLD and IEF Predictors
To guage the mixed info content material of gold and Treasury momentum, we classify every month into considered one of 4 joint macro-states:
GLD constructive, IEF constructive
GLD constructive, IEF detrimental
GLD detrimental, IEF constructive
GLD detrimental, IEF detrimental
For every of the 4 forecasting horizons (1M, 3M, 6M, 12M), we compute fairness curves and efficiency tables underneath every state-conditioned buying and selling rule.
State 1: Gold ↑ and Treasuries ↑ (Aligned Optimistic Momentum)
Determine 5 (once more on a log scale) and Desk 5 present that this regime achieves the strongest efficiency throughout probably the most prolonged horizon (12M) of all variations and variants introduced to date. Each Sharpe and Calmar ratios sufficiently exceed these obtained from fashions relying solely on gold or bond momentum. Notably, these outcomes are achieved even with out holding money throughout ineligible intervals (i.e., the technique stays absolutely invested solely when the joint sign is constructive and earns no yield or curiosity in any other case), underscoring the robustness of this mixed predictor.
States 2–4: All Different Combos
In distinction, the remaining three regimes—
2. GLD constructive, IEF detrimental
3. GLD detrimental, IEF constructive
4. GLD detrimental, IEF detrimental
—produce far inferior efficiency. Figures 6–8 and Tables 6–8 constantly exhibit weak or detrimental Sharpe ratios, poor cumulative returns, and elevated drawdowns.
These findings indicate that solely the collectively constructive state accommodates dependable predictive content material, whereas all different states replicate macro environments unfavorable to tactical gold publicity. Specifically:
State 4 (GLD detrimental & IEF detrimental) constantly reveals the worst ahead efficiency, aligning with an interpretation of rising actual yields and pro-cyclical macro circumstances.
States 2 and three provide no incremental worth and largely replicate transitional macro phases with a restricted directional sign for gold.
Annual Joint-Momentum Allocation Rule: The 12-Month Gold–Treasury Regime Filter
A refined annual (12-month) superior momentum technique is constructed by conditioning gold publicity on the joint 12-month momentum state of each GLD and IEF, choosing solely the State 1 configuration—Gold ↑ and Treasuries ↑—which empirically dominates all different variants in Sharpe ratio, Calmar ratio, and cumulative return progress. The buying and selling rule is outlined as follows: at every month-to-month rebalancing date, compute the trailing 12-month complete return of GLD and the trailing 12-month complete return of IEF; if and provided that each returns are strictly constructive, the technique maintains a 100% lengthy allocation to GLD; if both return is non-positive, the technique allocates 0% to GLD, or might maintain money place incomes United States Fed Funds Curiosity Price, as absolutely the, remaining amended model.
This specification isolates the macro regime characterised by falling actual yields and easing monetary circumstances, which the empirical evaluation identifies because the state with constructive ahead gold returns. Consequently, the 12M joint-momentum State 1 rule represents probably the most potent model of the mannequin, outperforming all single-signal and all different state-conditioned methods.
The empirical proof demonstrates {that a} joint gold–Treasury momentum specification materially improves the data set for timing tactical gold publicity relative to single‑sign guidelines. Throughout 1, 3, 6, and 12‑month horizons, the one constantly sturdy predictive configuration is the aligned constructive state (GLD↑ & IEF↑), which identifies a falling actual‑yield / easing macro regime that persistently precedes favorable gold extra returns. All different joint states (GLD+/IEF−, GLD−/IEF+, GLD−/IEF−) produce weak or opposed threat‑adjusted outcomes, with the GLD−/IEF− state exhibiting probably the most opposed ahead efficiency; this asymmetry helps the interpretation that the interplay of period and gold momentum encodes latent actual‑price and threat‑urge for food info that single‑asset momentum can’t absolutely seize.
Quantitatively, the annualized again‑take a look at metrics for the 12‑month joint‑momentum rule substantiate each improved returns and materially higher threat‑adjusted outcomes when money is explicitly included. The pure 12M regime filter, augmenting the rule with a money allocation (proxied by the Federal Funds price), raises the annualized return, barely lowers volatility, will increase the Sharpe ratio, and leaves the drawdown meaningfully unchanged, bettering the performance-to-drawdown metric. The development with money is economically intuitive: holding a brief‑time period money sleeve throughout out‑of‑regime months captures coverage‑price carry, reduces alternative value of being flat, and amplifies the data worth of the regime filter with out materially growing tail threat.
The proof strongly helps the conclusion that gold’s return-generating course of is inherently macro-financial, and that incorporating cross-asset momentum—particularly from long-duration Treasuries—enhances predictive accuracy by capturing the low-frequency dynamics of actual charges and financial coverage regimes.
From a portfolio‑building and asset‑pricing perspective, these outcomes have three speedy implications. First, the joint momentum issue serves as a compact, investable regime classifier that maps on to actual‑price and financial‑coverage states, making it helpful for each tactical allocation and structural fashions of gold premia. Second, the technique is implementable with liquid proxies (GLD, IEF, and a Fed‑funds money sleeve) and month-to-month rebalancing, however sensible deployment requires cautious adjustment for transaction prices, ETF charges, and lifelike execution slippage; robustness checks (bootstrap inference, stroll‑ahead validation, and sensitivity to momentum lookback) are due to this fact important earlier than capital allocation. Third, the findings invite formal extensions—specific modeling of anticipated actual charges, incorporation of inflation surprises and cross‑asset carry, and integration into multi‑asset portfolio optimization—to quantify how the gold–Treasury regime sign interacts with broader threat‑premium cycles and to ascertain financial significance underneath different macro eventualities.
Creator: Cyril Dujava, Quant Analyst, Quantpedia
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