Is a hedge fund that invests in exchange traded commodity futures
contracts(copper, zinc, gold, crude oil etc) and goes BOTH long and
short sharia compliant? Would an investment into such a fund be
allowed under islamic (sharia) law?

Based on my research, it is extremely unlikely that a conventional
hedge fund of the type you describe would be compliant with Islamic
law.  The investing in basic materials is fine, but conventional
shorting is prohibited.  Furthermore, the fund probably collects
and/or pays some interest in the course of its activities.  However,
there are hedge funds in existence that claim to be sharia-compliant.

Sincerely,

Wonko

Sources:

"Shariah is based on the Koran, the teachings of Muhammad, and the
work of Muslim scholars during the first two centuries of Islam. Its
principles prohibit Muslims from participating in some of the
mainstays of Western business, such as earning or paying interest and
engaging in speculation."

"Dealing With Islam: Lawyers help Muslims invest in Western world
while adhering to religious principles. " By Lily Henning, Legal Times
(May 27, 2003) http://www.shariahfunds.com/news/images/Legal%20Times_5-27-03.doc

"It will therefore come as no surprise that while conventional
managers are shorting stocks and pooling investor capital into opaque
fund of funds, Islamic financiers have sat on the sidelines unable to
see a way to bring such products to their customers. Surely an Islamic
hedge fund is impossible, they say, since the risk and speculation
inherent in this vehicle are expressly proscribed under Sharia law?"

"Are Islamic alternative investments a reality?" Banker Middle East
(2005) http://www.bankerme.com/bme/2003/apr/islamic_finance.asp

"The problem is they couldn't find any hedge funds that, as things
stood, were able to accept the boundaries imposed by Islamic law.
Sharia does not allow one to sell what one does not own. In other
words, short-selling is out. Additionally, Sharia law does not allow
one to make money through debt and interest payments, so fixed income
funds and convertible funds are offthe list, as well as public
companies in the banking and insurance sectors.

Finally, funds investing in companies related to gambling, alcohol,
tobacco, and most media and entertainment are also forbidden. The
sectors that are acceptable include healthcare, consumer products,
technology, and basic industries. "

"What are the basics of a Sharia-compliant hedge fund? 

From our perspective, we needed to address three basic requirements to
achieve parity with conventional hedge fund managers and their
returns. The first, with the help of Sharia scholars, was to develop
and refine criteria for companies eligible for consideration and build
a sufficient universe of stocks so you could pursue a legitimate hedge
fund strategy.

The second was to develop a methodology for carrying out short sales,
since conventional short-selling is prohibited by Sharia, as well as a
methodology for dealing with options and balance sheet leverage. The
third requirement was to build an efficient, accurate and transparent
monitoring system for Sharia scholars and managers to ensure the
integrity of the compliance process."

"Hedge fund plans to break ground in Islamic market" By James
Altucher, The Financial Times (August 23 2005)
http://www.shariahfunds.com/news/pop-up.php?cat=show&id=91

Search terms: Islamic law investing hedge fund

You may want to review my article in Banker Middle East from September:

http://www.bankerme.com/bme/2005/sep/islamic_hedge_funds.asp

Futures are not a classical contract type in Islamic commercial law.
Hashim Kamali discussed the issue very detailed in his book "Islamic
Commercial Law". Nevertheless a conventional structure would not be
accepted as Islamic or Shariah compliant from the majority of
scholars.

Long/short is possible to be replicated with a different set of
documentations than commonly used. With that a Shariah compliant
commodity long/short fund could be certified and then sold to
Islamically oriented clients.