The SP 500 closed up 0.46 yesterday to hit a new record of 6,909.79, marking a 17.48 percent increase for the year. With only the quiet Christmas week left before the end of 2025, it is likely that investors will mark this down in their spreadsheets as a very good year. However, the price of gold is up an astonishing 71 percent year to date, and is currently hovering around 4,514 per troy ounce, leaving some investors to wonder if they should have diversified their portfolios.
According to Claude Erb and Campbell Harvey of the Fuqua School of Business at Duke University, the traditional narrative explaining gold's rise is only partially true. In a recent study, they argue that the introduction of algorithmic trading, a type of high-frequency trading that uses artificial intelligence and machine learning to execute trades, has had a significant impact on gold's price. Algorithmic trading allows for the rapid execution of trades, which can create a self-reinforcing feedback loop that drives up prices.
"We found that the introduction of algorithmic trading in the gold market has led to a significant increase in volatility," said Erb in an interview. "This is because algorithmic traders are constantly monitoring the market and making trades based on their models, which can create a snowball effect that drives up prices." Harvey added, "Our research suggests that the rise of algorithmic trading has created a new type of market dynamics that is different from traditional markets."
The study by Erb and Harvey provides new insights into the role of artificial intelligence in financial markets. Algorithmic trading has become increasingly prevalent in recent years, with many investment firms and hedge funds using AI-powered trading systems to execute trades. However, the study suggests that the rise of algorithmic trading has created a new type of market dynamics that is different from traditional markets.
The implications of the study are significant, as they suggest that the rise of algorithmic trading has created a new type of market risk. "The use of algorithmic trading has created a new type of market risk that is not well understood," said Erb. "This risk is related to the rapid execution of trades, which can create a self-reinforcing feedback loop that drives up prices."
The study also highlights the need for regulators to take a closer look at the use of algorithmic trading in financial markets. "Regulators need to take a closer look at the use of algorithmic trading and ensure that it is being used in a way that is transparent and fair," said Harvey. "We need to ensure that the use of algorithmic trading does not create a new type of market risk that is not well understood."
In terms of current status, the price of gold continues to hover around 4,514 per troy ounce, leaving some investors to wonder if they should have diversified their portfolios. The SP 500, on the other hand, continues to trade at new record highs, with many investors optimistic about the prospects for the stock market in 2026. However, the study by Erb and Harvey suggests that the rise of algorithmic trading has created a new type of market risk that needs to be taken into account.
As the year comes to a close, investors will be watching the market closely to see how the price of gold and the SP 500 will perform in 2026. With the rise of algorithmic trading and the increasing use of artificial intelligence in financial markets, it is likely that the market will continue to be shaped by these new technologies. As Erb and Harvey's study suggests, the implications of the rise of algorithmic trading are significant, and regulators and investors will need to take a closer look at the use of these technologies in financial markets.
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