Published November 15, 2012
| Wall St. Cheat Sheet
All three major U.S. equity indices are currently on a losing streak, but the price of gold has been relatively strong. The precious metal recently logged one of its strongest quarters in years, thanks to another quantitative easing program being launched from the Federal Reserve. After finishing 2011 at $1,531 an ounce, the price of gold now trades near $1,700. Gold is on pace to climb higher for the twelfth consecutive year, and several well-known hedge funds still appear interested in the safe-haven asset.
Late Wednesday, 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 are still unknown.
Listed below are details on how popular hedge funds invested in gold names in the third quarter of 2012:
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. 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.” Some have speculated that his eventual unwinding of SPDR Gold Trust shares would collapse the ETF’s price, but this has yet to occur. Paulson still appears confident in his position. His firm Paulson & Co. Inc. holds 21.84 million shares of the SPDR Gold Trust, unchanged from the second quarter and valued at $3.75 billion at the end of September.
Paulson also maintained his stakes in Agnico Eagle Mines, Barrick Gold, NovaGold Resources and IAMGOLD. He decreased his position in Gold Fields to 6.54 million shares, compared to 18.03 million shares in the second quarter. Interestingly, Paulson has completely sold out of his position in JPMorgan Chase, the largest bank by assets in America. In the second quarter, he slashed his stake by 78 percent. Paired with his massive exposure to gold, this speaks volumes about his confidence in the financial system.
George Soros, the billionaire hedge fund manager known for breaking the Bank of England, once claimed that the “ultimate asset bubble is gold.” Apparently, Soros’ management team feels differently about the precious metal. The firm increased its stake in the SPDR Gold Trust by a whopping 50 percent to 1,320,400 shares in the third quarter, compared to 884,400 shares in the second quarter. The move comes after the firm almost tripled its exposure in the ETF during the second quarter, when it reported an increase from 319,550 shares in the first quarter to 884,400 shares during the April through June period. Soros Management also more than tripled its relatively new position in Freeport-McMoRan Copper & Gold. The hedge fund now holds almost 1.30 million shares of the miner, compared to just 385,000 shares in the second quarter.
Greenlight Capital’s David Einhorn recently wrote a piece criticizing the mass printing and bond buying by central banks around the world, relating it to an American Express card that eventual hits a limit. Einhorn explains, “This buying binge brings to mind American Express cards, which are famous for their promise of no pre-set spending limits. But as some AmEx customers have learned, there is a spending limit – they just don’t tell you what it is. AmEx anticipates how much you can repay based on your annual income and your payment history. When your charges exceed their estimates, they cut you off until you pay off your balance.” He continues, “Central bankers should keep this dynamic in mind, as they continue to run their printing presses. While the ink may be endless, the market’s tolerance is not (though there is no sign that it is nearly exhausted).”
Naturally, Einhorn is a fan of gold. While it is unknown how large of a physical bullion position Einhorn holds, he did maintain his positions in Barrick Gold and the Market Vectors Gold Miners Index ETF. As of the end of September, his stake in Barrick Gold, the world’s largest gold producer, is valued at $82.2 million. Meanwhile, his Miners ETF position is worth about $322.5 million.
Although many investment firms maintained or increased their exposure to gold names in the third quarter, Third Point, the hedge fund founded by Daniel S. Loeb, reduced its stake in the SPDR Gold Trust to 130,000 shares, compared to 145,000 shares in the second quarter. This comes after the firm completely sold out of its Barrick Gold position in the previous quarter.
Steve Cohen’s SAC Capital Advisors LP made several moves with gold miners. The hedge fund increased its stake in Yamana Gold nearly fivefold to 370,496 shares, compared to 75,826 shares in the second quarter. It also increased its stake in Eldorado Gold to 74,654 shares, compared to 53,671 shares in the previous quarter. Positions in Barrick Gold, Goldcorp and AngloGold Ashanti were all reduced, while the Gold Fields stake remained unchanged.
Investor Insight: Is Gold Set to Benefit from Obama’s Re-Election?
If you would like to receive professional analysis on miners and other precious metal investments, we invite you to try our premium service free for 14 days.
Disclosure: Long EXK, AG, HL, PHYS