Benedicte Gravrand, Opalesque Geneva: The commodities markets jittered during the first week of May, as aggressive sell-offs drove prices down, especially those of oil, gold and silver. According to the Kudlow Report on CNBC, shares on U.S. markets dropped about 1.5% for the week (although they went up a bit on Friday), silver dropped 26%, oil 5% and gold and copper 5% - and the dollar went up around 2.5%. It is too early to see evidence of dramatic gains or losses from hedge funds following the sell-off, but some managers and advisers had expected the overheated trades, and think prices will pick up again. One of those expecting was George Soros. When The Wall Street Journal reported that prominent hedge-fund investors such as himself were dumping silver, this apparently triggered more selling. Managers foresaw the dip, expect more rallies Data from the Commodity Futures Trading Commission indicated hedge funds and large managed funds had left the silver market long before this week’s plunge, Barron’s noted. "Gold, silver and oil were strong performers in April," commented Charles Gradante, co-founder of U.S.-based investment adviser Hennessee Group yesterday. "While silver and gold experienced a correction over the last few days, most managers believe silver and gold will continue to increase until there is evidence of a rise in interest rates, which would strengthen the dollar." He added that hedge funds had been underperforming this year so far, due to a bull market making it difficult to make any profit in short trades (Hennessee's main index is up 1.3% in April, 3.80% YTD). "Ben Bernanke may have been right in saying that the inflationary concerns due to commodity prices were exaggerated as they were likely transitory," said yesterday’s weekly report from Swiss-based private investment office Bedrock Group. The report also posited that we just had a slow and long build-up into rising commodities, these being notoriously thin markets, leading to a fall in a day of a month’s worth of rise, which could be seen as normal. Bedrock believes that commodities remain important necessities and are likely to have supply/demand imbalances into the future whereby demand growth outstrips supply capacities - probably in the likes of oil, copper and foodstuffs. Jeff Holland, managing director at hedge fund firm Liongate Capital Management, sees the commodity market sell-off as a substantial margin increase for silver and lacklustre economic data on Thursday. Indeed, long trades had become very crowded by both retail investors and macro hedge fund managers, who took profit on gains and subsequently activated stop-losses as price declined. Indeed, the strongest area of hedge fund performance for April, according to data provider Hedge Fund Research, was Macro strategies, as the HFRI Macro (Total) Index posted a gain of +3.36% (2.76% YTD), the strongest monthly gain since May 2009. Short US-dollar positioning and long commodity exposure, in particular to silver, natural gas and oil, were primary drivers of performance. Discretionary strategies also contributed to positive performance on currency and fixed income exposure. "Commodities, especially recently, have been prone to unsophisticated speculative inflows chasing returns, driving prices higher faster and then washing out on no particular news when the trade becomes too crowded," Jeff Holland said. "Robust risk management and trading discipline remain important to successfully invest in the commodity markets." He does not believe there are any changes on the commodity supply, demand and inventory fundamentals fronts in the medium and long terms. So the conditions for a bull market remain, "but … price appreciation will not be in a straight line." Liongate is one of the hedge funds that reduced its exposure to commodities in April, and the firm is awaiting the correct time to re-establish its long positions.

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