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Gold Is A Global Currency, And Here’s The Proof

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(Kitco News) - Any doubt that gold is a global currency can now be put to rest as one investment firm has been recognized for its unique strategy that sees gold trade against seven major currencies.

Recently, the investment firm Insch Capital Management, based in Jersey, one of the channel islands between the United Kingdom and France, won the 2017 Hedge Funds Review European Performance Award for its gold-based currency strategy. Since its inception in February 2015, Insch’s gold strategy has a net return of almost 56%. The strategy is up almost 19% for the award’s judging period from July 1, 2016 to June 30, 2017.

By comparison, gold itself is down 0.29% since February 2015 and is up 11% since the start of this year. At the same time, the S&P 500 Index is up almost 20% since the start of the year as the equity market continues to see record-high valuations.

Christopher Cruden, chief executive officer at Insch, said that his strategy is fairly simple. Algorithms are used to identify tradable trends in spot gold against the U.S. dollar, euro, Swiss franc, Japanese yen, British pound, Australian dollar and Canadian dollar. The Insch Kintore strategy is able to go short and long the individual gold-currency pairs, he explained.

“For those who argue that gold is a currency, they should be happy because we have just proved that. We are successfully using gold as a currency in a very real sense,” he said.

Cruden said the firm’s strategy uses gold exclusively because of its massive liquidity. The market’s relatively stable volatility lends itself to create viable trends in the marketplace, he added.

“Gold, as a currency, would be the fourth most liquid market in the world,” he said. “Since we started trading, the gold price has in fact flat-lined…but our strategy has earned consistent profits because it is bi-directional.”

Interestingly, while the firm’s gold strategy has done well, Cruden doesn’t actually have any opinion on the precious metal. His guiding principal: where is the next trend? He added that he sees the gold-currency pairs as just numbers on a ledger.

As to Cruden’s secret to a successful gold-currency strategy, he said that there is no secret -- just strong discipline in following the algorithm’s trade signals, infrequent trading and low leverage.

“We remove the labels at the top of the rows of numbers,” he said. “The label can very much effect -- in most cases adversely -- what you are intending to do. Gold is the most human of all markets and all materials. When you mention gold, people’s eyes flicker, but a computer’s eyes don’t flicker.  Computers read the numbers and not the labels. We dehumanize the process and remove ego and emotion. Each one of our trades is system generated.”

According the firm’s ledgers, the most successful currency trade in 2017 has been gold/GBP because of volatility surrounding the Brexit referendum in 2016 and the ensuing negotiations. The second most profitable trade in 2017 has been gold against the U.S. dollar, with the firm taking advantage of the 2016 Trump trade and then quickly reversing course in the aftermath of the election.

The strategy’s worst trade in 2017 has been against the Japanese yen and Australian dollar. Cruden explained that the yen has seen high volatility within a narrow range, making it difficult to trade.

In total, Cruden said that the firm achieves a 50/50 win/loss ratio. Effectively, losing trades cost $1 and winning trades earn $1.29.

“There is not one big trade in one particular cross that we have made our money in,” he said.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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