Monday, May 20, 2013

Summer Doldrum hits early - Fund managers loses shirt (and faith) in gold bet in 2013

The investment community continues to be shocked by the record breaking Dow Jones index and S&P 500, as if the magic economic engine that is US of A keeps on trucking towards what seems like a full recovery.
 
Have all the gold bugs been deadly wrong? 
Legendary fund managers such as Vinik (of Magellan Fidelity) fame recently closed what was a wildly successful fund after years of successful records. He's down 5% so far since . Link here
 
“While we are very proud of our excellent long-term record of 17 percent annualized returns since we started VAM in 1996, the last 10 months have been more difficult following our restructuring,” Vinik said in the letter, adding that his fund is down 4.8 percent since last July. “It is time for us to take a break.” 
 Considering gold last July 2012 was at  $1,600 per troy ounce and today sits at under $1,390, I'm thinking Mr. Vinik, the gold bugs need you alot more than The Boston Red Sox, the team he's leaving fund management to run. 

Compared to most funds such as US Global's Commodity centric funds lead by the charismatic Mr. Frank Holmes, unfortunately down a staggering Year To Date (YTD) amount of nearly 50%. Mr. Eric Sprott, of gold and silver investment fame, is down similarly on his physical trust holdings and various funds.

PHYS and PSLV are his gold and silver trusts, respectively. Silver (as poor mans' gold) despite its industrial uses has again acted more volatile than gold, dropping over 30% YTD.

With investors gun shy about performances so far, what continues to make the sector appealing?
 If China and India continues to need the supply of raw materials, where is the return for the investors that take the risk to fund these projects?

If its any consolation, Paul Singer, despite recent setbacks on short term gold prices, is convinced the US as a country is going down once QE runs out of bullets, and it will.
 He's sent client notes that he's not at all worried about gold.

When a smart guy like that who's made a killing on timing the US Subprime along with Paulson and Co, we think it's wise to listen.

We remain bullish on sustainable short to midterm deals with cashflow and revenue - or ability to continue to generate joint venture and so-called "miracles" by financing or receiving operating capital from senior partners in this scenario.

Cash rich juniors tend to do well in this environment when there's a tremendous and unreasonable flight to yield and safety.

LONGS: TNR.v, ILC.v, SLW.to, EGD.v, PTW.v
Elliott Management Corp., the $21.8 billion hedge-fund firm founded by Paul Singer, said gold, a money-losing position for the firm this year, remains the best store of value in an uncertain global economy.
“Although our gold position lost money in the quarter and afterward, we remain unconvinced that anything resembling a genuine normalization of global economic and financial conditions has been achieved,” Elliott wrote in an addendum accompanying a first-quarter letter to investors. “There is only one store of value and medium of exchange that has stood the test of time as ‘real money’: gold. We expect this dynamic to assert itself in a large way at some point.”
Enlarge image Elliott Management President Paul Singer