Hedge Funds Have Big Stake in Gold’s Direction

The 5 percent or so pullback in the price of gold as well as gold exchange traded funds and mining stocks in recent weeks has sparked a debate over whether gold’s rapid runup has peaked, or simply a correction that is offering a great chance to buy in at a lower price.

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Perhaps the person who has most at stake is John Paulson. He is said to have a bulk of his personal assets in his gold fund or gold shares of his other funds. In addition, at the end of the third quarter five gold mining stocks accounted for 14 percent of his funds’ assets. “We believe all of the stocks have upside potential in a flat gold price environment but would rise even more in a in a higher price environment,” Paulson told investors in his third quarter letter.

At the end of the third quarter, Paulson's funds owned 31.5 million shares in SPDR Gold Shares, easily making him the ETF’s number one holder. The fund, which was also Paulson’s largest holding, seeks to replicate the performance of the price of gold bullion.

Paulson's biggest holding in a gold mining stock at the end of the third quarter was Anglogold Ashanti, which explores and produces gold. Paulson was also the company’s largest investor even though he trimmed his holding by more than 6 percent in the three-month period. The billionaire manager said in the client letter he likes the stock because it is the largest gold miner in the world but had the lowest price-to-net asset value among its peers.

Louis Bacon’s Moore Capital was by far the largest new investor in Anglogold Ashanti, picking up five million shares in the third quarter. Three other hedge funds were among the five largest new purchasers of the stock in the September period — Jim Simons’ Renaissance Technologies, former GLG Partners manager Phil Jabre of Jabre Capital Partners, and GLG Partners, which recently merged with MAN Group.

Dan Loeb’s Third Point lifted his exposure to gold toward the end of last year. Gold was his second largest position in September and his top position in each of the final three months. As recently as August, gold was not among his top five positions.

A number of hedge fund managers established new positions in SPDR Gold Shares, including Shumway Capital and Highbridge Capital Management.

Market Vectors Gold Miners ETF also attracted many hedge funds, including John Griffin’s Blue Ridge Capital and David Einhorn’s Greenlight Capital.

However, it is possible that several prominent managers cut back on this exposure in recent weeks or months. For example, in his recent year-end letter to investors, Einhorn did not even address gold, suggesting that is was not an important theme in his portfolio.

Another luminary who may be less exposed these days to gold is George Soros. Although at the end of the third quarter SPDR Gold Shares was his largest holding, he did trim his position by more than 10 percent. He also cut back on his positions in several mining stocks, including Barrick Gold, Great Basin Gold and Newmont Mining.

According to Reuters, in a speech delivered in Toronto back in November, Soros did proclaim "The conditions for (high) gold are pretty perfect." However, he did suggest he was getting nervous about the pervasive interest in the metal, warning: "The big negative is that too many people know this and a lot of hedge funds are very exposed ... Gold has a tendency to go parabolic," suggesting it could plummet at any time.