Gold-focused trend-follower Insch Kintore anticipates “ideal” volatility level in commodity

Gold bullion

Christopher Cruden, manager of the currency and gold-focused CTA strategy Insch Kintore, hopes to capitalise on “ideal” elevated volatility levels in the commodity this year, following a positive start to 2021.

Cruden’s novel Insch Kintore strategy, which marked its sixth anniversary earlier this year, is a systematic trend-following programme which treats gold as a currency, trading the precious metal as a base currency against G10 currencies on a rolling spot basis.

The fund rose more than 6 per cent in February, as gold dropped by around the same amount.

The algorithm-based quant hedge fund takes an agnostic stance on the direction of gold, and instead trades the volatility of the daily price changes in the 10 currencies against gold as FX crosses.

“This year we anticipate that volatility will remain at somewhat elevated levels, but they will probably decrease over time, not to previous historic lows but somewhere between the major highs in volatility that we spiked to and the historic lows,” he told Hedgeweek on Tuesday. “That range is ideal for us.”

Cruden, a former director at managed futures pioneer AHL, described 2020 as an “interesting but somewhat disappointing year”, after the fund made a 3.39 per cent annual gain.

Gold, traditionally a safe haven for investors in times of turmoil, initially soared in the early days of the Covid-19 crash last year. But its priced has duly tapered off as equity markets rebounded.

“We had a positive year, but the return was not what we were looking for,” he said. “It started off gangbusters - up 20-30 per cent - but then there was a substantial change in the volatility of gold, and the rest of the year was disappointing after a strong start.”

He added: “We have always said as a firm that volatility never rises, it just jumps. That was reflected in the daily price variations; we went long, then short, then long and then short, which is not an ideal environment for us as a systematic trend follower.”

Launched in February 2015, the Kintore strategy has generated an 86.1 per cent net return since inception, and today manages more than USD50 million in assets.

Reflecting on the events of the past year, the veteran gold investor said: “You would have thought that in the midst of a pandemic that gold would go up. But that’s not the case – gold is down 15-20 per cent from its highs. All of the old certainties are no longer certain; you can’t make a sensible rationale for equity markets either.

“When this all comes home to roost, it’s going to be markedly unpleasant. In that environment, gold may or may not fulfil its traditional role.”