For the past several months, financial news outlets have been awash with bearish write ups on the commodities market. Gold and silver in particular have been the worst hit, with the latter making headlines last month for dipping to the lowest level in over two years.
Toward the end of May, silver prices dipped to lows not seen since September 2010. This was as a result of the underlying slow industrial growth. With similar headlines in the gold sector, analysts have gone on to point fingers, with some of them even blaming the Fed. Amid the ruckus, little attention has been given to a small group of hedge funds, which are raking in incredible profits from the declining precious metal prices.
Renowned U.K. hedge fund Lansdowne is one of the few players in the economy that is not sounding off about the price decline in silver. Following a late March disclosure, it was established that Lansdowne held 0.7% of Fresnillo (LON: FRES), a U.K silver and gold miner short. The shares, which were at the time valued at around $112 million, were estimated to have brought Lansdowne more than $20 million.
While Lansdowne stood out because of its reputation, other lesser known hedge funds are also making huge bets on the falling prices of silver and gold. This is signaled by the next to astronomical increase in short interest throughout the industry.
Here is a brief cover up of companies in the metals sector that have witnessed increased short interest over the past several months.
In April, Barrick Gold (ABX) saw its short interest surge close to 50 percent; building on an equally formidable gain of 44 percent a month earlier. It is reported that the April short interest was the highest in at least a year.
GoldCorp (GG) is another player that saw big upswings in short interest during the April timeframe. Shares sold short in the company tracked upward 40 percent to an estimated 7.28 million during the period.
During the same April timeframe, Randgold Resources (GOLD) also saw a tremendous increase in short interest. The exploration and development company, which mainly places its focus on Sub Sahara Africa, saw a 69 percent upswing in short interest.
And now recently compiled data from Bloomberg highlights that Silvercorp Metals (NYSE: SVM) was the second-most-shorted stock on the NYSE during the early June timeframe. Compared with 350,072 shares, which were shorted in the last two weeks of May, 1,809,190 shares were added short in early June. This signaled a mind-boggling 416 percent increase.
Even as analysts continue to complain and scratch about for solutions to the price freefall in metals, hedge funds are hoping that the free fall will last a bit longer. It's a tsunami of returns for hedge funds shorting silver and gold.