Physical Gold Premium vs. Spot Price – A trading signal?

Updated 12/13/22 @ 1:15 PM EST

I just noticed that the physical gold premium and the spot price of gold are often inversely correlated. In other words, every time you would want to buy gold (when the spot price is cheaper), the premium appears to explode higher. So this throws a bit of cold water on the urge to make a physical purchase.

But is there a potential way to play this inverse correlation?

As a general rule, precious metal ETF’s don’t trade at a premium to spot. So, one way to take advantage of this potential signal might be to buy one of the gold ETF’s (GLD, IAU or PHYS) when the premium is high – maybe above 12% – and then sell it when the premium goes under 7% or so.

Unfortunately, this strategy would not have worked very well during all periods shown in the chart.

Still, this is something I am going to look closer at going forward.

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