As gold hits new highs, hedge fund rush may herald volatility spikes

Gold bars and coins

As gold prices reach fresh highs, more hedge fund investors could pile into the commodity – heralding fresh spikes of volatility in the asset, according to Christopher Cruden, manager of the currency and gold-focused CTA strategy Insch Kintore.

Hedge fund strategies of various stripes have built positions in gold this year, with the commodity soaring on the back of sustained anxiety amid the coronavirus crisis, reinforcing its traditional ‘safe haven’ status among investors spooked by recent events in equities and fixed income markets.

Following a continued rally this year, prices of the precious metal topped USD2000 an ounce on Wednesday.

Cruden, a veteran currency and commodity manager, believes the gold price will continue to trend higher still, which could bring about renewed volatility and disrupt markets.

“I’m not surprised that gold has gone higher, I’m surprised it’s taken this long,” Cruden told Hedgeweek on Wednesday. “There are more buyers than sellers, and the failure of other asset classes means a lot of people are looking to gold, which is a more understandable and tactile asset.”

Cruden’s Insch Kintore strategy – which marked its fifth anniversary earlier this year – is a systematic trend-following programme which approaches gold as a currency, trading the precious metal as a base currency against G7 currencies on a rolling spot basis.

Insch Kintore, which manages around USD54 million in assets, has generated a near-19 per cent return this year amid the gold surge, with other assorted hedge fund strategies said to be booking stellar gains from the rise.

“Prices are going up, and you can often count on hedge funds to arrive a day late and a dollar short in the wrong place. That’s what they do,” said Cruden, a former director of managed futures pioneer AHL.

“That’s fine - they will drive the price up, and the volatility will increase. But for people like myself, low volatility initiates a trend and high volatility terminates a trend. However, I do not think we are anywhere close to the high volatility that we’re going to see in gold. The trend very much remains intact at this time.”