ETF / Futures Arbitrage: NYMEX Gold vs. two non-USD ETFs

This study combines the principles of ADR and ETF/Futures arbitrage.  Prior examples of ETF/Futures arbitrage have only included US-listed futures and US-listed ETFs.  ADR studies on the contrary have included many foreign listed, non-USD denominated assets.  It is the goal of this and future studies to expand on this research by including multiple legs and various competing securities (for instance, comparing cash FX vs. futures FX as a hedging vehicle).

Both ETFs in this case suffer from a significant lack of any meaningful depth in the order book.  The bid/ask spread of each ETF make them prohibitively expensive to trade intraday as well, especially given the volatility of the studied periods.  The markets overlap from 22:45 CST to 05:00 CST, and both studies were recorded June 20, 2012.

Global Gold: HKFE-listed GLD spread to CME & LIFFE

This is the arbitrage constructed from four gold futures contracts, all denominated in USD.  The four contracts include: CME's GC contract, NYSELIFFE's ZG and YG contracts, and the HKFE-listed GLD contract (not to be confused with the US-listed ETF of the same symbol).

The similarities of these contracts make this structure a relatively simple one, however if the many contracts listed in other currencies, with different quality grades and weights of varying sizes are included, the complexity of arbitrage grows exponentially. 

The bid/asks of the four contracts were recorded from 7:00PM CST July 25, 2011 to 3:05PM CST on July 26, 2011.

 This is the overlapping hours where all four contracts are open for electronic trading.

The GLD Spreads.

GC / GLD Spread, 7pm - 4am

GLD / ZG Spread, 7pm - 4am

YG / GLD Spread, 7pm - 4am

A closer look at the turbulence occurring around 2:30am CST in each relationship.

YG / GLD Spread, 2am - 3am

The CME / LIFFE spreads are forthcoming.

Further Reading:
Limits to Arbitrage and Hedging: Evidence from Commodity Markets