One Of 2011's Best Performing Hedge Funds Sees Gold At $2,500 Shortly

Tyler Durden's picture

While it is early to determine if the ongoing breakout is finally in anticipation of upcoming episodes of direct and indirect monetization by the Fed, ECB, or any of the many other pathological currency diluters in circulation, it is obvious that precious metals have found a new bid in recent days. Is this then, the beginning of the next surge in gold and silver to record highs? It remains to be seen, but one entity, the Duet Commodities Fund which was one of last year's best performers, has already made up its mind. 'Our central forecast in gold remains constructive as our long term view targets $2,500 in 2012. Our core view is that gold will head higher to the $2,500 range driven by consequential USD weakness once the EU crisis dissipates and the US steps into the limelight. A weaker USD is not undesirable in the world order as everyone (especially China) understands that the US consumer is the driver for global consumer confidence and consequential consumption led demand." Wow - someone in this market can actually think one step ahead of the inevitable ECB LTRO/monetization, and realize that the Fed will in turn have to escalate to that escalation. Gold, er golf clap.

From Duet Commodities Fund

Dear Investors,

When written in Chinese the word “crisis” is composed of two characters. One represents “danger”, and the other represents “opportunity”. This is the most accurate way I can express my thoughts and feelings about the coming year in the commodities markets. Volatile, unpredictable yet scattered with times of great opportunity. The prophecy of the world ending in 2012 seems ever more relevant when we look at a world flirting with potential disaster. 2011 saw an avalanche of economic and geopolitical events, as well as natural disasters. All of which had negative impacts for commodities demand. The events of the “Arab Spring” re-invigorated fears of instability in the Middle East, the devastating Tsunami in Japan sent a domino effect along the manufacturing supply chains, the already fragile US recovery appeared to be losing momentum, in China the tightening of monetary policy heightened fears of a hard landing and finally European sovereign debt issues  continued to escalate. So what does 2012 hold in store for us?

2012 stands a good chance of being politically pivotal, both in terms of people and a clash of ideologies. Among the five permanent members of the UN Security Council, Britain’s David Cameron is the only leader who seems certain of still being in power at the end of the year (famous last words). Barack Obama and Nicolas Sarkozy face presidential elections which they may lose. Dmitry Medvedev has already ceded the Russian presidency back to Vladimir Putin. Meanwhile in China, Hu Jintao and Wen Jiabao are due to prepare the handover in early 2013 of the  presidency and prime ministership to Xi Jinping and Li Keqiang. Altogether some 70% of China’s senior leadership is expected to change. What I am trying to emphasise is that the world’s leaders will be preoccupied at home. There will be a large dispersion from which countries will succeed and which will suffer. Emerging markets will for the first time buy over half the world’s imports in 2012 and the “red back” will make faster than expected strides towards being recognised as a global functioning currency.

Of the main macroeconomic events of 2011 the European debt crisis and the “Arab Spring” have the potential for greatest continued impact in commodities in 2012. If we can intelligently prepare and navigate through these factors and overlay them with the respective commodity fundamentals, we will have a good base to forecast future prices. In Europe we do not believe that the situation will get to a point where the Eurozone breaks up. With the respective nations working hard to manage their  situations at home what is very important is they agree on a roadmap on the process of fixing Europe over the next several years. With regard to the “Arab Spring” we have seen tensions re-appear in the Middle East and it seems apparent that this will not be for the last time. Also geopolitical escalation in Iraq and Iran seem likely. The US has removed all troops from Iraq which raises the question whether the country can withstand a potential future attack. In Iran the potential for sanctions appear high and increased political and potentially military action should not be discounted.

In the fundamental world we continue to view the commodities market as navigating between the currently balanced or tight physical markets and the threat that the European debt crisis could in the near future cause a global economic recession, which would lead to a sharp drop in demand. The oil market is pricing at a discount to clear the physical markets and drawing down inventory cover in anticipation of a potential sharp drop in oil demand in the near future. This de-stocking is further tightening the physical markets and leaving the oil market increasingly vulnerable should oil demand prove better than expected, or supply disappoint. These forecasts reflect our view that crude oil prices will need to continue to rise in order to slow demand growth, restraining oil demand in line with limited supplies, even in a relatively poor economic growth environment. For 2012, we believe that the risk is skewed to the upside. However, when we reach the point where demand destruction  has balanced the market a retracement back to lower levels is expected.

Our macroeconomic forecast remains supportive with commodity markets managing to avoid a global economic recession. Economists have lowered their forecast for 2012 world economic growth to approximately 3.2% (from 3.5%) and introduced a 2013 forecast of approximately 4%. This reduced outlook for world economic growth, while not forecasting a global recession, makes it more likely that the commodities market can maintain the central course embedded in our forecasts.

Our central forecast in gold remains constructive as our long term view targets $2,500 in 2012. Until we see USD weakness and any associated inflationary expectation we may not see gold significantly higher unless there is further geopolitical unrest (Iran, EU, etc…). Our core view is that gold will head higher to the $2,500 range driven by consequential USD weakness once the EU crisis dissipates and the US steps into the limelight. A weaker USD is not undesirable in the world order as everyone (especially China) understands that the US consumer is the driver for global consumer confidence and consequential consumption led demand. Disturbing any improvements in the US growth economy will hurt all of the global trade partners so the Fed will be inclined to protect US competitiveness and growth via USD management. Throughout 2012 I think we will see various currency devaluations across the globe, as individual nations try to reduce the debt burden and also attempt to  increase competitiveness in order to pull out of the recent recession. This debasement in currencies lends well for gold to increase in importance as a store of wealth.

So how do we make returns in such an environment? Our core views will not change often, but our timing, sizing and hedging pattern will become more frequent to take advantage of the volatile market conditions. We have mentioned many times to investors that our strategy puts emphasis on the “path” as well as the “destination” of commodity prices and that market’s seldom move in a straight line. This seems set to continue in 2012 where we continue to see a “tug of war” between physical fundamentals and macroeconomic events. Overall we are not long term bearish commodities. It is still a buy on dips world. The bears in the world will concentrate on three main subjects: lacklustre demand, a hard landing in China and Europe disappearing in a puff of smoke. We do not subscribe to this boundary condition. Demand has the potential to surprise on the upside and we are already seeing better economic numbers coming from the US. Also, commodities are about  demand vs.  supply and we do not need incredible demand when there are worse supply issues in key commodities. Europe is not going to be a quick fix but a long process taking several years. The key is consensual agreement and execution of this process which will neutralise the vast amount of fear and uncertainty priced in currently. When the US agreed on their course of action in early 2009 a risk taking sentiment unfolded. Once the EU agrees and implements their plan we may see similar benefits. China has managed its’ economy very well, containing price inflation and has now slowly taken the foot off of the brake. Overall this creates a picture that, albeit volatile, should trend higher over the course of the next twelve months.

We at Duet Commodities Fund wish you great success in 2012 and look forward to another year of working together.

Yours Sincerely
Tony Daniel Hall
CIO Duet Commodities Fund


Courtesy of Value Walk

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
francis_sawyer's picture


That sucks... I was hoping to have the chance to buy it cheaper...

SWRichmond's picture

The operant theme is not concurrent depreciation but rather sequential depreciation, as the major currencies take turns being weak and strong.  This keeps the sheep in the currencies longer (look!  USD's strong right now!) and allows more purchasing power to be stolen before everyone jumps.

Uncle Sugar's picture

Seriously, I thought the deflationary collapse will take gold to $500/oz.  That's what I was hoping to fill my boat up.  Hopefully it won't sink in a storm again.

CvlDobd's picture

Damn, genemarchbanks are you seeing this?

The Deleuzian's picture

The Gold/HUI ratio is Wow!!!  Haven't seen a bigger disconnect in a while

Hulk's picture


Holy shit! An Angel just got its wings!!!

gothicreader's picture

Yes - bring it on!

Comay Mierda's picture

the printing presses are cranking up, why do you think spx is rallying like a mofo?  it will only crash if priced in gold

Elwood P Suggins's picture

Once the EU crisis dissipates.............

Don't look for this to happen anytime soon .

Bastiat's picture

Maybe he meant: "Once the EU dissipates."

Seditious Blasphemer's picture

1.) buy Gold NOW

2.) buy silver NOW

3.) lurk Zerohedge all year

4.) ???????

5.) PROFIT!!

The Deleuzian's picture

Gold at resistance levels...The miners aren't doing shit...The general equity markets are at way super bullish levels!!...We need a disconnect... 

The Deleuzian's picture

Hey Slewie...I just don't like this setup at all...Something is in the weeds...

Silversinner's picture

Will come a time all of the players wants to

hedge with PM trough the weekend.

We just buy coins and stack.


slewie the pi-rat's picture

ya know, watching the last hour, i had the same thought!

i'm watching the bonds&notes, but nada

tyler's piece after the close [Gold Matches USD Weakness As Silver Jumps] shows today's spike whether it was "4 the weekend" or not

but, what if it was?  with the technical aspects of the Ts looking a little bleak&weak, "the players"  went w/ paper silver, instead? 

stay tooned!  according to the charts, this may be more than a weekend date!  heluva weekly close!  silver BiCheZ now awaiting confirmation!

Silversinner's picture

Will come a time all of the players wants to

hedge with PM trough the weekend.

We just buy coins and stack.


Dr. Gonzo's picture

I love gold too but I'm putting all new money into platinum. Just my hunch.

Fuh Querada's picture

dr gonzo

I would be interested to hear your case for platinum. I read that it is being replaced by palladium in catalytic converters. Or do you attribute it semi-monetary characteristics like silver ?

A Lunatic's picture

Historically, platinum has been valued in excess of gold. Platinum is "on sale" from this perspective whenever gold is more expensive that Platinum. Long view: Buy cheap platinum now, trade in for gold later and "profit"..........If there is a later.

xela2200's picture

I bought some platinum on the basis of rarity. If you want to play the paper game a little, then You can short gold and long platinum. Play the spread until it corrects to its historic ratio.

SilverRhino's picture

You do actually realize that platinum is MORE common than gold in the Earth correct?

xela2200's picture

That is not what my research suggest or what I have heard from "experts". Neither does the historical price relation between gold and Platinum. However, Platinum has an industrial use and sometimes doubles the price of gold during good economic times and likewise lags when the opposite is the case. I was expecting to Platinum to find a floor in the 1-1 relation to gold due to jewelry and investment purchase, and that didn't happened. Food for thought.

Thanks for bringing this up. I will research it further. It might change my investment strategy.

trav7777's picture

...which is why its production is like 7% of gold's?  Historically, the amount of platinum mined is 1/27 of gold.  There is only ONE significant source on the planet, in RSA, and a secondary smaller source in Russia.  Everything after that is effin negligible.

Reserves don't matter, production matters.

tmosley's picture

Yes, throw out all inconvenient facts.

Then ignore the fact that silver is produced at only 7 times the amount of gold, while it is priced at 1/52nd the price of gold.

Oh, wait, I guess you must have meant that it is only the CHANGE in production that matters.  Which is leads us back to reserves, but you don't care to think about that.

Dr. Gonzo's picture

It's true that many factories have been retooled to use palladium as their catalyst because of cost and this has caused it to jump while platinum falls for the same reason and this is why I like platinum at this level. Platinum is still best for diesel engines hands down and is better for gasoline however palladium has a higher melting point so can be located closer to the engine so it starts working faster and is seen as a good substitute for the superior platinum. Platinum is 3 times as rare and 3 times as dense. I see it as a prestigious super metal. Beter than gold. I like all 4 of the metals but think platinum is a no brainer after it's been beat down. Wait til it gets past gold again and people have to chase it. They will remember this time and regret not getting it. Physical holders of gold are sure to be physical holders of platinum too and it works in the same scenerio as when their is a squeeze. Try to source platinum in a time of currency crisis. Sorry. Not going to happen. It's basicaly only found in 3 locations in the world and it takes 10 tonnes of the ore to get an oz of it and up to a 6 month process for the final product so yeah. I like platinum at this level. and you can brag to your buddies if they ever confiscate gold again it won't concern you. I view it not so much as industrial but the king of metals. so go get an oz. Maples are the drop dead coolest in platinum form btw.

Fuh Querada's picture

Many thanks for the info. In my neck of the woods physical Pt coins unfortunately have 19% VAT imposed, but I have a small position in an ETF. The Au- confiscation issue is a good point. Gerals Celente stated that he diversified from Au into Ag for that reason.

Dr. Gonzo's picture

No problem. You gotta figure out all the angles in this crooked world to stay ahead. Plus Zerohedge never mentions the noble metals in their silver/gold reports so somebody's got to get this discussion going. As for Palladium the CEO of Kay Jeweler's was trying to get a market going for jewelry a few year's ago when it was $200 an oz.but I don't think his campaign took off with the public. In theory with it's properties it would do well for jewelry but I view it exclusively as an industrial...yet a very rare (much more rare than gold) and important element for a modern world..and oh yeah I was loving it at -$200 an oz. That's practically giving the stuff away. I do not view platinum as industrial. I view it as the premier prestigious metal. So what if their is not a cartel in the form of World Central Banks hording it? IT'S TOO RARE! and you don't want them to be able to manipulate it. If they do lose all control the PM's will find their "true" value anyway and that will be set by the physical market. Russia won't give us any. South Africa Probably won't.(not for U.S. dollars anyway) Canada will tell us to get it from our Montana border with them. Then you can try to buy a Platinum Eagle. Hint. They don't any meaningful quantity anyway. Part of the reason for it's journey to $1350 was a scramble for dollars during this euro crisis and the dollar isn't going to get bid in perpetuity. Sooner or later it should go through it's own crisis.  You just can't be without a budget and hike the debt ceiling every 3 months and say you are the world reserve currency.In case you haven't heard their is an FX war going on. When it's over there's going to be a lot of pissed of nations and some things are not going to be easily sourced with toilette paper currency. That's why if you want it I would buy it now and not sneeze at this price tag just in case. Oh. It costs a lot to get it out of the ground too. Not like silver which only costs $5 to get out. (just kidding)  Disclosure: My PM holdings go in this order. 1.Silver. 2.Gold. 3. Platinum. 4 Palladium. Place your bets everyone. 

Acidtest Dummy's picture

If Pt were as easily recognized and verifiable as gold it would have never been priced lower than Au. Gold is pretty non-confusing to identify, whereas platinum looks like silver, palladium or even molybdenum which could make for an expensive confusion. If there were a foolproof street test for platinum the price would be up from gold.

trav7777's picture

yes...a quirk of relativity is why gold is gold.  The other metals are pretty indistinguishable.  Gold gets a premium.

Iridium and osmium are also pretty rare; rhenium and rhodium.

trav7777's picture

Palladium is about as rare as platinum...both are produced at a fraction of the rate of gold

tmosley's picture

I am personally hesitant to invest in platinum, as I know a person who has developed a new method of producing catalytic converters with half as much platinum as is currently used.  

Seer's picture

and... auto sales will soon HALVE.  So, mathematically speaking, platinum's future demand is looking quite weak (1/4 of what it is/was).

Long-John-Silver's picture

The average vehicle is now 11 yrs old and as long as it's running they are keeping them. In a sane world vehicle sales would be 4 times higher than what they currently are. I remember a time when car loans were paid off in 3 years and most people purchased A new vehicle every other year.

A Lunatic's picture

Besides, you can't eat platinum.

Nozza's picture

Oddly enough, you can. Platinum anti-cancer drugs are a major market for platinum, something that palladium cant do. Combination of pharma and platinum seems bullish for me. Bitchez. lol

HungrySeagull's picture


Prove it. We are cancer survivors who faced the red devil.

Solid's picture

Last time I checked, central banks are not buyers of platinum. Stick with gold people!

smiler03's picture

Perhaps insuring his life could provide a quick return?


trav7777's picture

of course, that will NEVER happen with industrial usages of silver, right?

tmosley's picture

The producers of vehicles don't really care about the price of platinum.  It adds maybe $400 to the price of a given vehicle.  Demand is inelastic, jsut like silver.  Thing is, platnium's primary use is in catalytic converters, meaning that it is vulnerable to a downturn in a single sector.  Silver is used EVERYWHERE.

Further, silver is produced as a byproduct of base metal mining, meaning industrial downturns are counteracted by decreasing production.  80% of platinum comes from native deposits.

In short, once again, you have proven yourself stupid.

Canadian Dirtlump's picture

Sounds good to me.. I'll keep knocking off parking meters and buying silver maples with the proceeds and when the silver gold ratio comes back from retardville I'll get mad bitches with my loot bag full of welfare metal.



EL INDIO's picture

…once the EU crisis dissipates…

That’s a big IF

And it sounds like hopium

NotApplicable's picture

Yeah, I think the word should've been concentrates.

kito's picture

This fund got lucky. Anybody who thinks ben is going to print to help the great american consumer, which is a RELIC, is just a broken clock....

fonzannoon's picture

Kito you said they would not downgrade France....just sayin.