Lumber: Worth Its Weight in Gold Offense and Defense in Active Portfolio Management

2015 NAAIM Wagner Award Winner

18 Pages Posted: 11 May 2015 Last revised: 3 Apr 2020

See all articles by Michael Gayed

Michael Gayed

Lead-Lag Publishing, LLC

Charlie Bilello

affiliation not provided to SSRN

Date Written: May 8, 2015


Prior academic research focuses on commodities in isolation as leading economic indicators, ignoring the message price behavior may have on other asset classes. We find that the relative movement of Lumber to Gold provides important information on economic growth and inflation expectations, which gradually diffuses with a lag to stock and bond markets. Lumber’s sensitivity to housing, a key source of domestic economic growth in the U.S., makes it a unique commodity as it pertains to macro fundamentals and risk-seeking behavior. On the opposite end of the spectrum is Gold, which is distinctive in that it historically exhibits safe-haven properties during periods of heightened volatility and stock market stress. We find that the relationship between Lumber and Gold helps to answer the critical question of when to “play defense” and when to “play offense” within the context of active portfolio management. In this paper, we show that a strategy using the signaling power of Lumber and Gold results in stronger absolute and risk-adjusted returns than a passive buy-and-hold index. This outperformance stems from being more aggressive in a portfolio during periods when Lumber is leading Gold and being more defensive during periods when Gold is leading Lumber. The results are robust to various time frames and across multiple economic and financial market cycles.

Keywords: Intermarket Analysis, Stocks, Risk, Trading, Market, Momentum, Rotation, Volatility, Bonds, Fixed Income, Treasuries, Equities, Rebalancing, Quantitative, Efficient Markets, Hedge, Asset Allocation, Gold, Lumber, Offense, Defense, Small-Caps, Large-Caps, Cyclicals

JEL Classification: C00, C10, C50, G00, G11

Suggested Citation

Gayed, Michael and Bilello, Charles, Lumber: Worth Its Weight in Gold Offense and Defense in Active Portfolio Management (May 8, 2015). 2015 NAAIM Wagner Award Winner, Available at SSRN: or

Michael Gayed (Contact Author)

Lead-Lag Publishing, LLC ( email )

923 McDonald Avenue
Suite #205
Brooklyn, NY 11223
United States


Charles Bilello

affiliation not provided to SSRN

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