Published May 16, 2012
| Wall St. Cheat Sheet
At the end of 2011, gold prices finished almost 20 percent below their all-time nominal highs made in September. European concerns and liquidation actions sent investors running towards the U.S. dollar for safety. Sound familiar? While many believed the decade long bull market in precious metals came to an end, several well-known hedge funds saw the pullback as a buying opportunity.
Late Tuesday, many institutional investment managers filed their mandatory 13-F with the Securities and Exchange Commission. The 13-F is a quarterly report of equity holdings required by managers that oversee more than $100 million in qualifying assets. The form 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 is still unknown.
Listed below are details on how popular hedge funds invested in gold names in the first-quarter of 2012:
Billionaire fund manager John Paulson is known for betting against subprime mortgages during the housing bubble, but is also a vocal advocate for gold. Earlier this 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.” His firm Paulson & Co. Inc. kept its large position in the SPDR Gold Trust unchanged at 17.3 million shares in the first-quarter and remains the largest holder of the ETF to date. However, the firm increased its shares in NovaGold Resources from 22.9 million in the fourth-quarter to almost 32 million shares in the first-quarter. Paulson also increased his holdings in IAMGOLD from 2.7 million shares to 3.8 million shares in the same period.
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Third Point, the hedge fund founded by Daniel S. Loeb, also kept its position in the SPDR Gold Trust unchanged at 160,000 shares in the first-quarter. However, the firm increased its stake in Barrick Gold, the world’s largest pure gold mining company in the world, from 164,100 shares to 244,000 shares.
More than two years ago, George Soros, one of the most famous hedge fund mangers, warned at the World Economic Forum that gold was in a bubble. He claimed, “When interest rates are low we have conditions for asset bubbles to develop and they are developing at the moment. The ultimate asset bubble is gold.” Apparently, Soros had a change of heart. His management firm nearly quadrupled its exposure to the SPDR Gold Trust from 85,450 shares in the fourth-quarter to 319,550 shares in the first-quarter. Soros Fund Management also opened a new position through call options in Newmont Mining, one of the world’s largest gold producers.
Earlier this month, Greenlight Capital’s David Einhorn wrote a piece criticizing the Federal Reserve’s monetary policy and related it 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 I’d love for our leaders to adopt sensible policies that would reduce the tail risks so that I could sell our gold, one nice thing about gold is that it doesn’t even have quarterly conference calls.” While Einhorn likely keeps his substantial long exposure in the form of physical gold bullion and off the records of the 13-F filings, he does have positions in some miners. He kept his position in the Market Vectors Gold Miners ETF unchanged at 7.2 million shares in the first-quarter, but reduced his exposure to the Market Vectors Jr. Gold Miners ETF and Barrick Gold to 1.2 million shares and 1 million shares, respectively.
Although many investment firms increased their overall exposure to gold names in the first-quarter, Steve Cohen’s SAC Captial Advisors LP reduced its stake in the SPDR Gold Trust. The hedge fund reported a position of almost 180,000 shares at the end of the fourth-quarter, but cut that stake to only 66,700 shares at the end of the first-quarter.
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Disclosure: Long EXK, AG, HL, PHYS