In what I consider to be a very interesting development, yesterday Todd Sullivan wrote an article titled ‘Hedge Fund to Measure Returns in Gold Rather than Currency’ in Seeking Alpha quoting from the Financial Times that says (paraphrased) “as worries grow over governments debasing their currencies by printing money Osmium Capital Management, a $178m hedge fund manager based in Bermuda, has begun offering investors the chance to have their investment denominated in gold by ‘launching a new share class allowing investors to hold shares measured as troy ounces of the fund, rather than U.S. dollars, sterling or euros’”.
The Osmium website in part describes the workings of the fund as follows: “An investor will be able to subscribe in GBP, EUR or USD. The investor’s subscription amount will then be converted into a number of ounces of gold and denominated as such thereafter. The Fund will hedge its exposure to the price of gold by selling gold for cash and buying gold forward on a monthly basis, in the same conceptual way as the GBP and EUR Classes are hedged to these respective currencies. The result is that the investor will be able to hold the equivalent of a long gold position, with exposure to the performance of the price of gold and invest this gold position in the Fund, additionally gaining exposure to the underlying performance of the Fund.”
Sullivan says: “This shows a stunning lack of confidence in currencies. It also says that the fund is anticipating inflation to rear its ugly head in a scary way.” I think his use of the word ‘stunning’ is an overstatement, and that even if he is right that ‘the fund is anticipating inflation’ the latter would not be the only motivation the fund may have had. In any event, if this move by Osmium (obviously on a world scale a ‘smallish’ hedge fund – although who knows if that is correct in the aftermath of market corrections to date – is followed by others, that would be one more positive factor for gold.