Readings: Gold is a bad hedge, Rupee NDF volumes, Algorithmic trading
- Bloomberg: Gold Is a Bad Hedge, Questionable Investment
Gold reached a record high of $850 an ounce in January 1980. If since then the spot price of bullion kept pace with U.S. inflation as measured by the consumer-price index, gold would now be selling for $2,119.84. Instead, it stood at $732.05 in London trading yesterday, only about a third of what it should be if it were truly an effective inflation hedge.
Bullion has also benefited from strong jewelry demand in emerging-market countries such as China and India; shrinking global mine production, especially in South Africa; reduced net central bank gold sales; and the growth of gold exchange-traded funds . . . although gold may be a poor hedge, it isn’t necessarily a lousy investment.
With foreign institutional investors using the non-deliverable forwards (NDF) market to hedge against the rising rupee, the daily turnover in rupee NDF market has shot up from $100 million in 2003-04 to $750 million so far in 2007-08.
A NDF is a cash-settled, short-term forward contract on a thinly traded or non-convertible foreign currency, where the profit or loss at the time at the settlement date is calculated by taking the difference between the agreed upon exchange rate and the spot rate at the time of settlement.
- Financial News: Algorithmic trading gets smarter after quant upset
David Viniar, chief financial officer of Goldman Sachs – whose flagship quantitative multi-strategy Global Alpha hedge fund is down 32.9% this year to mid-September, and in August plunged 22.5% – termed August’s market moves as a 25-standard deviation event, something that would normally only occur once every 100,000 years.
JP Morgan has implemented enhancements to its trade execution algorithms, which are designed to pick up on subtle patterns in the order book and adjust the algorithm’s execution strategy in an instant.
He said: “There is a host of signals on the order book. If we build an algorithm to interpret these signals on an intra-trade basis then it gives the trader using these algorithms an advantage. We use the term harvesting liquidity for algorithms that are able to draw out and manage liquidity in this way.”
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