We are starting the 2025 GeoSense commodity discussions with a closer look at the hedge trade that seems to be capturing more attention by market participants: gold. While open interest at the time of this writing is slightly down from 1-week prior, aggregated open interest is high and we expect this trend to continue in light of current behavior of the VIX.
Again, for our forward market view, we rely on using a multifactorial “quantamental” approach which, in this case, projects two months forward as a guide to market sentiment. As the chart above shows, our back test confirms solid performance. Presently, we have displayed output for a model that leverages end-of-2024/early-2025 data to project trading ranges for 1Q25, and the outlook as of now is still constructive for gold.
GeoSense’s Russell 2000 Market Tracking Index
2024 ended with a mix of optimism and uncertainty in public markets, but the outlook for the start of the new year, along with the transition to a new US administration, seemed to carry a bullish consensus. The Russell 2000 public market benchmark (IWM) that AlphaGeo tunes our index to continues to exhibit a steady constructive pattern, and early signals from our feature selection process are pointing for this sentiment to continue.
The most recent GeoSense model update has placed more emphasis on the following variables (it is worth noting that there is a broader distribution than we are used to seeing).
Currency/FX dominated the signal drivers this month; notably USD relationships with:
- Euro
- Brazilian Real
- Chinese Yuan
- Energy inputs (primarily crude; natural gas notably absent)
- The VIX volatility index
- The Metals complex (gold, zinc, silver, copper)
- Agriculture & livestock (cotton, chicken, corn)
- US Housing Starts
The Industrial Renaissance Tracker (IRT) Update
The chart below shows the 3-year performance chard (updated through 30-Nov 2024) under each of the three weighting profiles. Two of the three IRT portfolios continue to outperform the selected benchmark (the BlackRock iShares Russell 2000 ETF) while consistently minimizing risk through lower drawdowns and a low-concentrated asset mix. Taking this further, we note that performance remains favorable when benchmarked against many standard measures of risk adjusted returns.
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