Financial Times/Gillian Tett/2-10-2022
“Since these automated strategies typically use artificial intelligence programs to analyse and react to market momentum, rather than economic fundamentals per se, this tends to exacerbate a herding effect, not just in commodity markets but in any asset class. And since the institutions selling these derivatives bets need to hedge their own risks with other instruments, extreme robo-herding creates distortions across market niches that can suddenly unravel, causing wild volatility.”
USAGOLD note: In modern-day financial markets, the madness of machines is just as big a worry as the madness of crowds with their programming subject, as Tett points out, to the same frailties as their human creators. While algorithmic trading has driven up oil, many analysts see it as a factor driving down gold. Just as reversing the oil open interest could dramatically reverse the price of oil, so too could it reverse the price of gold – and perhaps we saw the first signs of that on Friday.
