If you buy gold on a forward basis, you almost always pay a higher price than if you buy it for delivery today. That is called 'contango'.
Hong Kong-based hedge fund manager Steve Ellis, who runs the $20 million RAB Gold Fund, thinks that something quite rare is about to happen.
"My assessment of the market, including gold forward rates, suggests that gold could be about to go into 'backwardation' [which is where the spot price is higher than the forward price]," he says. "That means people value physical gold more than gold for future delivery. It could be due to the fear factor."
If gold has a negative roll yield, it makes it much more interesting to speculators and investors. It isn't easy to make money on a futures programme on a commodity that is always in contango.
Ellis's RAB Gold Fund was launched in 2006 and it has been up 5% per year for the last four years. It has a multi-strategy approach, which expresses itself though gold, for example, being long mining companies and selling gold calls against them, the relative value of gold versus copper or silver, and gold lease-rate swap trading.
His fund is neither a long-gold investor nor a gold equity fund. Net exposure is usually between 80% long and 60% short. However the fund does have another share class, the 'RAB Gold Plus Fund', which has more beta and directionality, with 100% long gold futures plus a share of the main fund's return.
The RAB Gold Fund used to manage $100 million. He didn't gate the fund through the crisis, and it duly got redeemed.
Before he became a hedge fund manager Steve Ellis used to work as a central banker at the Reserve Bank of Australia, where he supervised firms like Bankers Trust and State Street.