Prepare for commodity prices to be whipsawed

Because a bunch of new hedge funds will be out there with their big money chasing a finite amount of commodities. And only by forcing thhe prices up or down as needed will they make any money.

An ex-Glencore oil trader and a veteran grains merchant with futures broker R.J. O'Brien are among those behind the largest number of commodity fund launches in 3 years despite investor worries the multi-year rally in those markets is over.

A dozen hedge funds trading raw materials derivatives on discretion were launched in the first six months of this year, the same as in the whole of 2012, data from London-based research house Preqin showed. In 2011, only seven of such funds took off, the smallest number in 5 years.

The new funds are led by managers who are convinced they can be outliers in one of the toughest commodity markets in years. The funds typically begin trading with a few million dollars of the managers' own money and cash from family and friends, before seeking outside capital.

The launches coincide with talk the commodities "supercycle" of the past decade has been thwarted by the slowing of China's phenomenal growth. That has added to the caution of investors who had less concern allocating to hedge funds when oil, metals and grains prices were hitting record highs a few years back.

"There's certainly a mismatch now, with commodity managers seeing opportunities and investors remaining wary," said Amy Bensted, spokesperson at Preqin, which collects data on the alternative assets industry.

And the end result will be we pay more fore everything for no real reason whatsoever. But somewhere some big swinging dicks will be making big money.