Stocks

Gold Can Return 11% In The Next Year

Gold, the precious metal, reached an all-time high of almost $2070 in August, 2020 before a bout of profit taking took the yellow metal down 10% to around $1857. It now trades at around $1925, almost 7% lower compared to its all-time high. But, will gold continue to lose its luster, or is a recovery imminent?

According to the Trefis Machine Learning Engine, which identifies trends in Gold’s price data since 1999, returns for Gold average around 5% in the next one-month (21 trading days) period after experiencing a 10% drop over the previous month (21 trading days).  Notably, though, the commodity is very likely to outperform the S&P500 over the next month (21 trading days), with an expected excess return of 2% compared to the S&P500.

Now, it you extend the time frame to 1 year, the AI Engine says that Gold can return around 11% in the next 1 year, after experiencing a -7% drop in two months (42 trading days)

But how would these numbers change if you are interested in holding Gold for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning Engine to test Gold chances of a rise after a fall. You can test the chance of recovery over different time intervals of a quarter, month, or even just 1 day!

MACHINE LEARNING ENGINE – try it yourself:

IF Gold moved by -5% over 5 trading days, THEN over the next 21 trading days, Gold moves an average of 1.6 percent, which implies an excess return of -0.6 percent compared to the S&P500.

More importantly, there is 54.9% probability of a positive return over the next 21 trading days and 45.7% probability of a positive excess return after a -5% change over 5 trading days.

Some Fun Scenarios, FAQs & Making Sense of Gold Movements:

Question 1: Is the average return for Gold higher after a drop?

Answer:

Consider two situations,

Case 1: Gold drops by -5% or more in a week

Case 2: Gold rises by 5% or more in a week

Is the average return for Gold higher over the subsequent month after Case 1 or Case 2?

Gold fares better after Case 1, with an average return of 1.6% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of -1.3% for Case 2.

In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as shown in our dashboard that details the average return for the S&P 500 after a fall or rise.

Try the Trefis machine learning engine above to see for yourself how Gold is likely to behave after any specific gain or loss over a period.

Question 2: Does patience pay?

Answer:

If you buy and hold Gold, the expectation is over time the near term fluctuations will cancel out, and the long-term positive trend will favor you.

Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays!

For Gold, the returns over the next N days after a -5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500 after a +5% change over the last 5 trading days (since Gold and S&P500 are inversely related):

You can try the engine to see what this table looks like for Gold after a larger loss over the last week, month, or quarter.

Question 3: What about the average return after a rise if you wait for a while?

Answer:

The average return after a rise is understandably lower than a fall as detailed in the previous question. Interestingly, though, if Gold has gained over the last few days, you would do better to avoid short-term bets on it.

Gold’s returns over the next N days after a 5% change over the last 5 trading days is detailed in the table below, along with the returns for the S&P500 after a -5% change over the last 5 trading days (since Gold and S&P500 are inversely related):

It’s pretty powerful to test the trend for yourself by changing the inputs in the charts above.

What if you’re looking for a more balanced portfolio instead? Here’s a high quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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    Trefis is an interactive financial community structured around trends, forecasts and insights related to some of the most popular stocks in the US. Whereas most finance sites simply give you the facts about where a stock has been and what a company has done in the past, Trefis focuses entirely on the future.

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