Gold and silver price swings are powering algo traders and machine-learning funds

Published Mon, Feb 9 20261:04 AM EST

Key Points

Machine-learning hedge funds surged on the recent jump in precious metals prices, before sidestepping last week's sell-off.
Also known as commodity trading advisors (CTAs), the sector notched up one of its best months since 2000 in January.
Their ability to traverse different market environments makes them a key portfolio diversifier, industry pros say.

As gold and silver prices continue to seesaw, one corner of the hedge-fund industry is mining an opportunity from the huge swings in precious metals . Commodity Trading Advisors (CTAs), also known as trend-following or managed futures funds, are computer-driven investment strategies that trade investment trends across different futures markets, including equities, bonds, currencies, and commodities. Such strategies use a complex mix of statistical models, machine-learning algorithms, factors and other quantitative signals to identify — and bet on — upward and downward moves in markets, removing human emotion and biases from the investment process. These systematic models pounced on the upward price momentum in precious metals in recent months, helping trend-following quant funds to recoup losses sustained in last year's 'Liberation Day' turmoil. And despite the sharp reversal in both gold and silver, performance for the sector has held up. @GC.1 1Y mountain Gold futures. Societe Generale's SG CTA Index, the main performance benchmark for the CTA sector, rose 5% in January. Meanwhile, the SG Trend Index, a daily performance tracker of the 10 biggest trend-following hedge funds, had advanced 6.9% by Jan. 29. That made January one of the best months for the index since 2000. Both benchmarks remain up more than 4% year-to-date as of Feb. 4 — suggesting trend-following quant managers are successfully navigating wild swings in gold and silver. 'Nimble and flexible' So how are they doing it? "CTAs are nimble and flexible," said Andrew Beer, managing member at Dynamic Beta Investments. "The sharp reversal in gold and silver last week will cause many to derisk, but most will still bet on further moves upward," Beer said. "CTAs were early, contrarian and right about gold and precious metals. Last Friday's reversal was merely giving back some profits." Industry insiders explained how the assortment of signals and models underpinning the algorithms are helping the sector navigate precious metals' wild ride. While short-term trading models — which have smaller trading windows and chase shorter-lived trends — are designed to enter and exit trades earlier, medium- and longer-term models are often more responsive to larger, more meaningful moves — such as the falling yen, the rise in gold, and the rotation into non-U.S. equities. That helps them avoid sharper hits from sell-offs and boost returns. Jon Caplis, founder and CEO of hedge fund industry data provider PivotalPath, said medium-term trend followers, which dominate its Managed Futures Index, have generated consistent performance across several drivers, including long bets on precious metals. "While gold and silver ended the month with a significant selloff, gold still finished the month up 9.3% while silver was up 11.2%," Caplis told CNBC in an email. "In fact, most strategies have been reducing precious metals positions since September as volatility continued to increase, so benefited significantly on the way up while mitigating some of the losses during the sudden reversals." Meme trade Meanwhile, silver's emerging "meme trade" status makes it less compatible with many trend-following models — which may have led many strategi sts to curb their exposure and ultimately dodge the white metal's slide. "A good meme trade requires low price and low liquidity, and that conflicts with what most trend-following strategies need," said Yung-Shin Kung, partner and chief investment officer at Mast Investments. "Those are really prerequisites for a successful meme-type trade — and silver had those characteristics." @SI.1 1Y mountain Silver futures. He told CNBC in an interview: "With this low-price, low-liquidity dynamic, if you have enough people piling in, you see this explosive return on investment. But a lot of CTAs were probably just outright excluding silver because it doesn't have the liquidity that they naturally look for. So while silver has certainly skyrocketed, and you were missing out if you didn't include silver in January … among professional money managers and CTAs, there's a lot of consciousness around the illiquidity that exists there." Nicolas Gaussel, CEO and CIO of Metori Capital Management, also noted how silver's retreat ultimately had "limited impact" on industry performance, which has stayed resilient. "This tells us that CTAs are currently benefitting from trends not only on metals but also on other sectors such as agriculture contracts, some FX or equities," Gaussel told CNBC. "After having been extraordinarily adverse in Q2 last year, the environment turned pretty favorable in Q4, combining trends and diversification." Market pros said this underlines CTAs' ability to adapt to different market environments and not rely on one single factor. "CTAs perform best when the world changes a lot," said Beer, calling the sector a "compelling diversifier" to stocks and bonds. "January was filled with powerful macro trends: soaring gold and silver, a rotation out of US stocks, big moves in currencies. If this continues, CTAs could have a historically good year."