Are Hedge Funds Dumping Gold?
The price of gold continued its downward trend in the first quarter, falling from $1,675 to $1,600 an ounce. Sentiment reached new multi-year lows, but many well-known hedge funds are still maintaining their exposure to the precious metal.
Late Wednesday, many institutional investment managers filed their mandatory 13-F with the U.S. Securities and Exchange Commission. The filing is a quarterly report of equity holdings required by managers that oversee more than $100 million in qualifying assets, and it must be filed within 45 days of the end of each quarter. The 13-F provides a peek at what hedge funds did in the previous quarter, but investors should keep in mind that hedging and trading strategies of each fund are still unknown.
Listed below are details on how popular hedge funds invested in gold names in the first quarter of 2013:
Billionaire fund manager John Paulson is known for betting against subprime mortgages during the housing bubble, but he is also a vocal advocate for gold. Last year, he said in a letter to investors, “By the time inflation becomes evident, gold will probably have moved, which implies that now is the time to build a position in gold.”
Some have speculated that his eventual unwinding of SPDR Gold Trust shares would collapse the ETF’s price, but this has yet to occur. In fact, Paulson continues to keep a very large position in the fund. His firm Paulson & Co. Inc. held 21.8 million shares at the end of March, unchanged from the previous quarter, but higher than the 17.3 million shares held in the beginning of 2012.
Paulson kept his stake in Freeport-McMoRan Copper & Gold unchanged at 9 million shares, worth nearly $300 million. He first took a position in Freeport in the fourth quarter of 2012.
However, Paulson did trim his positions in other miners. He reduced his stake in Agnico Eagle from 1.02 million shares to 1.01 million shares, and Gold Fields from 6.54 million shares to 6.53 million shares. Shares in IAMGOLD were reduced from 3.88 million to 3.86. Paulson completely sold out of Barrick Gold, but has call options in the mining giant worth $10.6 million.
George Soros, the billionaire hedge fund manager known for breaking the Bank of England, once claimed that the “ultimate asset bubble is gold.” However, his management team still feels the need to hold a position in the precious metal. Soros Management held 530,900 shares of the SPDR Gold Trust at the end of March, down from 600,000 shares at the end of December. The firm also reduced its stake in Freeport-McMoRan Copper & Gold by 71 percent to 393,061 shares, and its stake in the Market Vectors Jr. Gold Miners ETF from almost 2 million shares to 1.2 million shares. Despite the reductions, Soros Management hiked its stake in the Market Vectors Gold Miners ETF by 75 percent to 2.67 million shares.
Greenlight Capital’s David Einhorn once wrote a colorful piece criticizing the Federal Reserve’s monetary policy, relating the central bank to force-feeding someone too many jelly donuts in hopes of a sugar rush. With the Fed maintaining record low interest rates, Einhorn explains, “As a result, I will keep a substantial long exposure to gold, which serves as a jelly donut antidote for my portfolio.”
While it is unknown how large of a physical bullion position Einhorn holds, he maintained his holdings in the miners. The hedge fund manager showed an unchanged position in Barrick Gold and the Market Vectors Gold Miners ETF of $57.8 million and $227.3 million, respectively.
In his recently released quarterly letter to shareholders, Einhorn comments on the declining gold price. “But investors are currently complacent about the unintended consequences of central bank money printing, and like most investment cycles and fads, this will persist until it doesn’t,” he explains. “Under the circumstances, it is curious that gold isn’t doing better.”
Third Point, the hedge fund founded by Daniel S. Loeb, maintained a modest stake in the SPDR Gold Trust of 130,000 shares, worth about $20.1 million at the end of the first quarter. Interestingly, he took two new positions in what could be argued as hard asset or wealth-effect plays. Third Point held 500,000 shares in Sotheby’s, a world-known auctioneer of fine art and jewelry. The firm also took a new 2.7 million share position in Tiffany & Co., the luxury retail jeweler.
The pullback in precious metals appears to have attracted a popular hedge fund. Leon Cooperman’s Omega Advisors added new positions in the SPDR Gold Trust and iShares Silver Trust worth $13.9 million and $4.4 million, respectively. The firm also took a new position in the Market Vectors Gold Miners ETF worth $4.4 million, but slightly reduced its stake in Freeport-McMoRan Copper & Gold.
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Disclosure: Long EXK, AG, HL, PHYS