New hedge fund to invest in gold and commodities as others exit and go short

A couple of articles on gold on other sites have really caught my eye, pointing to huge potential increases in the gold price perhaps even in the near term.  Although one of them, on the face of things, could be seen as extremely bearish on gold, as someone looking at trying to look for signs of a bottom in the gold price, it could be a huge indicator of such, while the other suggests that one of the most acute minds in international finance may indeed be recognising this and, if their timing is right, could make enormous gains as precious and industrial metals start to recover next year.  A third article to which I would refer readers is one of my own, published on the Sharps Pixley website which also looks to next year as seeing a major all-change point for gold taking it out of its near 50% correction and back into bull market territory.  That was  2016 a crunch year for physical gold supply which, in particular looks at seemingly ever-growing physical gold demand – primarily from Asia, and in particular China and India – coupled with rapidly falling stocks of available physical gold in the U.S. and the U.K.  As we said in the article: “The implications for the price are enormous.  2016 could thus well be the inflection year when physical gold availability from all sources and demand converge, and cross over, with enormous implications for the gold price.  Now maybe we are out with our timing, but the ‘trend should be your friend’ and the available supply trend looks to be declining while the demand trend is rising.”

Of the other articles out there, the always hugely informative, and sometimes controversial Zero Hedge website came up with a long piece entitled Extreme Gold Positioning Grows As Hedge Funds Add To Record Shorts  pointing out that major Hedge Funds and speculators  have been exiting from precious and industrial metals at an unprecedented rate and, indeed, are building up huge short positions.  This is typical behaviour at the bottom of the market.  As Zero Hedge notes “…it appears hedge funds continue to ignore systemic risk and surging physical demand, following the trend lower in paper gold prices by adding to already record short positions in gold last week. With the speculative world near-record long the USDollar and record short gold, how much longer can the status quo boat can remain upright with so many on the same side.”  The article which includes numerous charts is well worth reading.

The other article comes courtesy of  Gulf News from an interview with Orion Mine Finance Group founder Oskar Lewnowski in London, presumably on the fringes of the Mines & Money Conference where Lewnowski was a speaker.  He says that Orion, which has notably been providing finance to a number of potentially major precious metals projects at a time when such finance has been hard to come by, is also to start a hedge to invest in commodities and gold stocks at a time when most investors are fleeing them. The fund is due to launch in January next year. Orion is thus taking the almost perfect contrarian position, on the premise that many mining companies are losing money at current commodity prices and that the survivors from the fall-out will be in a hugely positive position when things ultimately turn around – seen as sooner rather than later.  The article was entitled Here’s a hedge fund getting in commodities, rather than out.   

Orion is the U.S. spinoff from Red Kite and has some extremely astute analysts on its team with mining backgrounds and thus a strong knowledge of how the industry works.  It is thus a totally mining-focused investment business with approximately $1.85 billion under management (as of September 30, 2015) specialising in providing flexible capital investment solutions to mining companies in the base and precious metals sector. Orion has demonstrated capability in debt, equity, convertibles, offtake, streaming, and royalty investments.  As a specialist in the sector it has perhaps a better understanding of the cyclicality of the mining industry, its potential pitfalls and positives, and is investing its funds accordingly.

Of course some other big names have recently been reported as seeing the commodities sector and gold as being prime investment targets.  Even if the cycle has not bottomed yet, the feeling is that, at last, the bottom is really close and they are positioning themselves to be well-placed when the upturn does occur.  Because so many mining companies are operating at the margin, or below it, they see the downside risk as very small and the upside, if and when the industry turns around, as being very large indeed.

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