The Hidden Link Between 10‑Year Treasury and Gold – Proof Inside

Lots of traders want to hold gold in their portfolio, but the trouble is buy and hold gold is brutal from a drawdown perspective. In 2011, gold fell over 45% from its peak and took 10 years to get back to its all-time highs. That's absolutely horrible for capital utilization and efficiency, and it drags down your returns. So how can you get gold into your portfolio without such a drag on performance? Well, I built a gold system that cuts that drawdown in half and makes the returns much smoother. And I'm going to share it with you in this video. The twist is that the system never actually looks at the gold price. It watches bond yields instead and takes its signals off yields instead of the price of gold. The trouble was the first version of the system was an absolute disaster. I'll show you why, and I'll show you what I did to fix it in this video. On the chart here, you can see what would have happened if you'd bought and held gold from 2004 to now. There's a couple of really great bull markets, but from 2011 when it peaked, there was a massive 45% drawdown, and that took 10 years to recover. If you were holding through that entire period, that's an incredible drain on portfolio performance. And it just doesn't need to be that way. So I wanted to build a system that would allow me to trade gold very simply with very little activity, very low frequency of trades to improve the performance from adding gold to my portfolio. So in this video, you're gonna get the full results including where it beats gold and where it loses to buy and hold gold because no system is perfect. I'm also gonna show you whether it survived almost 7 years of unseen data. that was never used during the testing and development phase. The complete rules are available. There's a link in the description below this video. So if you wanna cut to the chase and grab the rules and the code, click the link in the description. My name's Adrian Reid. I'm the founder of Enlightened Stock Trading, and I've been a profitable systematic trader for over 25 years. And today I trade Australia, US, Hong Kong, and Canadian stocks, as well as crypto, 100% systematically and fully automated. Let's jump in and talk about the Golden Rates System. Timing gold using interest rates. Before I tested anything, I wrote down the benchmarks. What is it I had to achieve in order to not throw away my new ideas? So I wanted the system to beat 2 benchmarks on the MAR ratio. MAR is the compound annual return divided by the max drawdown, and it's a measure of smoothness for systematic trading. If the system didn't beat these 2 thresholds, it was out. No questions asked. So what were these 2 benchmarks? Well, the first one is simple. Buy and hold GLD. If you just bought and held GLD in your portfolio and rode all the ups and The system had to do better than that because otherwise, why would you bother trading actively if you can't beat buy and hold? Now the trick is you don't just have to look at returns and beat buy and hold in terms of higher returns. If you get similar returns with much lower drawdown, then that's good enough to add to a portfolio and it'll probably add value. The second benchmark is a simple gold trend following system, just using GLD and buying when it's above the 200-day moving average and selling when it's below the 200-day moving average. Now that's not a great system, but if you can't beat a simple trend following system like that, then again there's no point trading this new system. So these are the 2 benchmarks that we had to beat with this strategy. So my first version was an absolute fail. I tried one version, made 1.9% return per year with a 35% drawdown for a MAR ratio of 0.06. Complete disaster, totally useless. Buy and hold gold gives you a MAR ratio of 0.17, and the simple gold trend following rule gives you a MAR ratio of 0.19. Now those are not high thresholds to beat, but we needed to beat those, and my first version didn't. So what I was trying to do was develop a gold system that used intermarket analysis, taking signals from a different market to tell me when to buy gold and when to sell gold. The first version used the US dollar index because I thought, well, with a flight to quality, when people sell risk assets, they buy US dollars. Those US dollars can either sit in the bank or you could do something else with them like buy gold. So my initial hypothesis was that might have been a useful signal. The idea seems sound, but I tested lots of different ways of expressing it and all of them failed the 2 benchmarks that we talked about earlier. So I tried a few different intermarket analyses on gold, and the one that worked really well consistently across a wide range of parameter values was the 10-year Treasury yield. So the key lesson I discovered was that when you have a hypothesis for a trading strategy, the first way you express it may not be the best way. And sometimes it pays to keep digging and find some other ways to express your hypothesis to try and find the most profitable strategy. So the theory here is that gold has no yield. So when yields are falling, Gold becomes relatively more attractive than it was in the past. When yields are rising and they're high, it's not very attractive to hold gold because you can earn a yield from bonds. But when the bond yields are falling, there's less opportunity cost to hold gold, so it makes it more attractive. And therefore, the theory is more people would buy it and the price would go up. So the system only holds gold when yields are falling and they've been low for a long time. Gold-to-earn price is not used anywhere in this system rules. This is a true intermarket system. So let's cover the rules of the system so you know what we're dealing with here. We're going to buy GLD that each ETF when the 10-year Treasury yield closes below its 200-day moving average and its 600-day moving average using simple moving averages. When that happens, we're going to buy on the next open. We're going to sell GLD when the yield closes above either one of those 2 averages. And when it closes above one of those 2 averages, we're going to sell on the next open as well. Otherwise, we're 100% in cash. There's no stops, no profit target, no leverage. It's just 100% cash system. Dead simple. 2 moving averages is all you need to generate the signals. So here's an example of a chart coming out of real test. On the bottom pane, you can see the candlestick chart of GLD, and on that chart you can see the buy and sell points. Buy here, sell here, buy here, sell here, buy here, sell here. And those buy and sell signals are generated from the bond yields. So you can see the price of the 10-year bond yield here, the 600-day moving average of that, and the 200-day moving average of that. When it crosses below both, you're going to buy. When it crosses above, you're gonna sell and then buy here and then sell here and then buy here and then sell here. Very, very simple system. So we're trading just one instrument. It's GLD. You're either 100% in gold or 100% in cash. When the system is 100% in cash, you can go and use that money in other systems in your portfolios. The idea is this system doesn't trade all that often. You can stack it with multiple other systems in your portfolio. It's in the market only 35% of the time. That's the time when bond yields are low and falling. So what is the performance of the strategy look like compared to buy and hold gold and compared to the simple trend following system that we talked about earlier? This chart looks a little messy, I'm sorry about that, but there's 3 lines on it. The green is the golden rate system that we're talking about, the red is buy and hold GLD, and the orange color is the simple trend following system that we talked about earlier. So GLD buy and hold, you can see it's quite volatile, up and down. There's some big drawdowns, and here from 2011 onwards there's that big dip. The simple trend following system kind of tracks the buy and hold GLD, goes to cash a little bit, but has a fairly deep drawdown here. Takes a while to recover and then captures most of the bull market from 2023 onwards. The system that we're actually interested in, the Golden Rate System, is out of the market for a lot of the time, but you can see it steps up here and then it basically runs sideways through this entire gold bear market and then captures the first up leg here. Sits out of the market for a while, has a little false start here, and then catches the last part of this bull market. In late 2025. So it doesn't beat buy and hold on a returns perspective, but it certainly beats it from a drawdown perspective. And the MAR ratio is also quite a bit better on this system compared to buy and hold GLD. MAR ratio is also better than on this system compared to the simple trend following system we talked about. So here's the performance stats, and you can see the worst drawdown of this system was 22.5% compared to 45%, almost 46%. Of buy and hold. The MAR ratio was 0.34 versus 0.23 in the buy and hold strategy. The annual return was 7.75% compared to buy and hold of 10.56%. So again, we're not beating buy and hold in an absolute return perspective, but this is much more efficient use of our capital. We're only in the market 35% of the time. We get most of the return with half of the drawdown. So it's a pretty good compromise. So you can see the rest of the stats on the left-hand side here. We've got 7.75% return compared to 10% here, 22% drawdown compared to 45%, MAR ratio of 0.34 versus 0.23. If we look at the drawdown profile of the system over the entire backtest, it really tells the story. The gold-colored drawdown profile here shows that there's about half the pain of buy and hold gold, and you're also out of the market a lot more of the time. So this is very easy to trade, not a lot of gut-wrenching drawdowns to deal with. So if we look at the price of GLD over the long term and then overlay on top of this when this system is in the market and when it's out of the market. You can see these vertical gold shaded periods are when the system was holding gold and the white periods are when it was not holding gold. So it does a fairly good job of capturing a lot of the bull markets. There's a few whipsaws obviously, like there are with many systems. It captures a chunk of the bull market. It doesn't capture the entire bull market because no system is perfect, but it does capture a good few uptrends. It captures this big bull market here and also the late half of 2025 when gold was really rocketing. So this system is either all in or all out. This chart is the exposure chart from Realtest, so it shows that the exposure is either zero, 100% in cash, or basically 100% all fully invested. Like you can see here, some of the best winning trades last for quite a number of months. So here's the thing that most people who are selling systems or sharing systems online don't share. This system doesn't beat buy and hold gold in a raging bull market. Buy and hold gold will win in certain conditions. The system has a pretty low trade count and the returns are pretty lumpy. So it's not a perfectly smooth equity curve. It's certainly not what you would want to trade with 100% of your capital. However, one of the most important lessons lessons in systematic trading is that a system doesn't have to stand on its own. You shouldn't trade just one system in your portfolio. So how good a system is, is measured by how well it contributes to your portfolio given all of the other systems you're trading, rather than how it works on its own. So don't let a kind of ugly equity curve fool you or turn you off. A good system in gold can add a lot to an equities portfolio because it's quite diversified and it makes money in different market conditions. So what we really want to do here is judge the system based on drawdown and MAR relative to buy and hold gold, and then also how well it performs once we add it to our overall portfolio, rather than just saying, are we beating gold's best years by trading this strategy? So here's the weaknesses of this system. It missed a lot of gold's 2020 to 2026 bull run. It did catch the end of it, but it didn't catch all of it. So during that period, it made 8.1% a year compared to 17% for buy and hold. So it kind of missed out there. It's got a low trade count. So it doesn't have a huge number of trades to give us confidence in our system testing and optimization. But I think it is enough to warrant a proportion of capital in our capital allocation model. And it also has pretty lumpy returns. One of the things I like to do is take my backtest and divide it up into several blocks. Let's say 3 different blocks and look at the annual return, the average annual return in each of those 3 blocks and see how consistent it is. This one is pretty lumpy. In the first third, it made 16% a year. In the second third, it made 3%. And in the final third of in-sample, it made 4%. So it's a little bit lumpy, but that's because sometimes it's a long time between gold bull markets. And so there was a big sideways period in the middle of the chart as you saw earlier. So the real test is looking at a system on data that it's never seen when you did development and optimization. So I developed this strategy on 2024 to 2019 data. The annual return during that period was 7.56%. The unseen data, the out-of-sample, was 2020 to 2026, and its annual return was 8.12% during that period. The worst drawdown was 22% in-sample, 20% out-of-sample. The MAR ratio, 0.34 in-sample, 0.41 out-of-sample. So that's pretty consistent in-sample, out-of-sample performance. So if you want to run this system for yourself, I've put together a complete package with all of the rules and the codes so you can test this and see how it contributes to your portfolio. All you need to do is click the link below in the description or go to go.enlightenedstocktrading.com/golden-rates. The link is in the description below. Now, whenever we test a system, we need as much evidence as possible that it's not a fluke. So one of the things I like to do is test on related markets. So I also tested it on SLV for silver and also on the gold miners GDX. GDX just to see if it would hold up. Now the performance is kind of similar. When you test on adjacent markets, you rarely get exactly the same level of performance. For GLD, we had a 45% drawdown for buy and hold compared to 22% drawdown for the Golden Rate System. For SLV, 76.5% drawdown for buy and hold, 42% drawdown for the Golden Rate System when we applied it to SLV. And for Gold Miners ETF rather, GDX, 79.9% drawdown for buy and hold and 50.8% when we applied these same rules. So it's not a that we managed to reduce the drawdown by using rates as the signal for this system. It worked in several adjacent markets. And if we add it to a portfolio, what we want to see is that it actually improves performance. So all I did here is a simple dumb test. If I was 100% buy and hold S&P, I would have had a MAR ratio of 0.2 with a worst drawdown of 55%. If I added the Golden Rates system to the buy and hold S&P, let's say we did 80% buy and hold S&P and 20% Golden Rates. The MAR ratio would've gone up a little bit to 0.26. Worst drawdown would've dropped to 40.4%. And this is because the system has a low correlation to the S&P. The correlation is just 0.03, and it only costs you a pretty small reduction in profits compared to buy and hold the S&P to reduce the drawdown quite a bit by adding this system. So overall, this isn't a great way to beat buy and hold in gold in terms of absolute returns, but it does drastically reduce the drawdown. And that's one of the major battles in systematic trading. We want to generate the returns with much lower drawdown so we can get a smooth portfolio of multiple systems combined together that efficiently use our capital to generate the results that we want. So this system generates gold-like returns with about half the drawdown and with your capital free 2/3 of the time to apply to other strategies. So the key lesson I wanna leave you with is that we never wanna judge a system on returns alone. We wanna judge it against the job that we need it to do in our portfolio. This system, we wanted it to generate similar returns to gold with much lower risk and add value to the portfolio. I demonstrated how it adds value to a simple dumb buy and hold S&P strategy. But if you combine this with a systematic portfolio of multiple strategies, it can add a lot more value than that even. So if you're interested in testing the Golden Rates Intermarket System, click the link in the description below or go to go.enlightenedstocktrading.com/golden-rates. The link's below. Get the rules, test it for yourself in your portfolio, and see what other ideas you can come up with based on this. My name's Adrian Reid. This is Enlightened Stock Trading. I'll see you in the next video. Bye for now.