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GoldLink Capital - gold derivatives

2007-08-16

Count of distinct funds: 2
Capital base: at least $150M (mid-2005 numbers)
Loss: unknown; all but "several cents on the dollar"

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stories: com.au

Just brought to our attention recently (it is now July 2008) are this group of funds managed by GoldLink Capital Asset Management of Australia. In specific are two funds run by the outfit, Incomeplus and Growthplus, which were shut down almost a year ago. From the article linked above:

Lost among the bigger stories yesterday is the effective demise of Richard Kovacs’ Goldlink listed hedge funds.

Goldlink had done nicely out of borrowing the metal and playing the gold options market to its own little formula, but it fell foul of Pascoe’s Law of Inertia: Things and systems that work well tend to continue to work well – until they don’t.

The gold market volatility patterns changed and both Goldlink Incomeplus and Goldlink Growthplus were smashed. Yesterday’s announcement to the ASX pulled the entire plug on the game – the positions are being unwound, investors will be left with several cents in their original investment dollar and the board is trying to think of something to do with that.

According to their profile at MoneyManagement.com.au, the outfit (founded in 2008) was managing about $150M by 2005.

A press release (cached) from IncomePlus dated February, 2005 boasted that they had built "one of the largest gold derivatives portfolios in the world." Note that by the above clipping we can presume they were involved in gold leasing (considered fundamentally a fradulent racket by some). The press release also states the firm, by that point, was controlling more than 14 million ounces in the OTC market. If they were still controlling at least that much gold by mid-2007, that would amount to about $8.4 billion of gold contracts. Assuming the firm's capital base was somewhere between $150 and $300 million by then, that would amount to 25-50 times leverage.

So it isn't all that much of a surprise that the strategy (any leveraged strategy) blew up. And while we wouldn't ascribe this to GoldLink alone, mid-August 2007 is exactly when the gold price began a phenomenal rise to well past $1000/oz. The confluence of these events suggests that August, 2007 was a critical point when many agents lost control of gold to the short side.

Given that a huge large COMEX short position in gold has developed since, we can't help but wonder if catastrophic losses linger for many other speculators (or price managers) should the gold bull continue on fundamentals.

A last supplemental tidbit, in 2003 GoldLink became listed on the ASX. Here is a link to their ASX profile.

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Important: This fund is on our list of hedge funds that have "imploded" (see also ailing lenders). However, please note that "imploded" is a somewhat subjective. The "imploded" list contains hedge funds (or other unregulated and autonomous speculative investment funds) which have gone through some sort of permanent adverse change. This is a somewhat subjective call, and does not necessarily mean total shutdown or bankruptcy. It can also mean steep and rapid mark-downs in net asset value; or abnormal "bail-out" by corporate parents or peers in order to avoid write-downs and provide liquidity. The funds are of any type and sector.