The valuation of gold is reaching such low levels, that hedge funds are now starting to see the metal as a good investment. Vermillion Asset Management, belonging to the Carlyle Group, will start its first dedicated metals fund shortly. Investments will include gold in particular, as the fund looks to capitalize on a rebound after gold’s largest annual decline in 32 years. The company joins peer Passport Capital, who has also been buying the metal.
Armored Wolf, another hedge fund, has a more fundamental view on gold, citing continued gold buying from China, instability in the Middle East, and the potential of India coming back to the market should restrictions be lifted. The fund sees gold as a good insurance against crises, higher taxes and inflation risks, all of which are possible outcomes of the current financial crisis.
Gold appears to be turning the corner on another front as well. We have seen merger and acquisition activity picking up again in the gold mining sector, with Primero Mining buying Brigus Gold, and Goldcorp bidding for Osisko. The larger miners clearly see the value in upstart producers, and are taking advantage of their historically depressed valuations while it lasts.