By Debarati Roy - Aug 14, 2013 10:58 PM PT
John Paulson the biggest investor in the SPDR Gold Trust, reduced his holdings by 53 percent as the metal plunged into a bear market. George Soros sold his entire position. Photographer: SeongJoon Cho/Bloomberg
Billionaire George Soros, founder of Soros Fund Management LLC. Photographer: Jerome Favre/Bloomberg
Billionaire hedge fund manager John Paulson, who told investors as recently as last month that they should own gold, cut his holdings in the metal by more than half as prices plunged into abear market.
Paulson & Co., the largest investor in the SPDR Gold Trust, the biggest exchange-traded product for the metal, pared its stake to 10.2 million shares in the three months ended June 30 from 21.8 million at the end of the first quarter, according to a government filing yesterday. The New York-based firm, which manages $18 billion, cut its ownership for the first time since 2011 “due to a reduced need for hedging,” according to an e-mailed response to questions. It also sold options to buy shares in Barrick Gold Corp. in the future, filings show.
John Paulson, president and co-fund manager of Paulson & Co. Inc. Photographer: Rick Maiman/Bloomberg
Aug. 12 (Bloomberg) -- Dominic Schnider, head of commodities research at UBS AG’s wealth-management unit in Singapore, talks about the outlook for precious metals and crude oil. Schnider also discusses aluminum prices. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move." (Source: Bloomberg)
John Paulson the biggest investor in the SPDR Gold Trust, reduced his holdings by 53 percent as the metal plunged into a bear market. George Soros sold his entire position. Photographer: SeongJoon Cho/Bloomberg
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The hedge fund is following other money managers who have been more aggressive in getting out as investors lost faith in gold as a store of value. Prices plunged by a record 23 percent in the second quarter as U.S. equities rallied and inflation was muted, while the Federal Reserve suggested it will reduce fiscal support for the economy. Billionaires George Soros andDaniel Loeb sold their entire SPDR stakes in the past quarter, U.S. Securities and Exchange Commission filings showed.
‘Armageddon Premium’
“We saw the Armageddon premium come off sharply in the second quarter, and people prefer stocks as the economic conditions started showing signs of improvement,” said James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees about $340 billion in assets. “There is increasing acceptance that the Fed may announce its plans to taper sometime this year.”
In the second quarter, the gold collapse led to a loss of $44.7 billion in the global value of ETPs. Gold demand fell to a four-year low in the period on record ETP sales and less central bank buying, the World Gold Council said today. Mining companies including Barrick and Goldcorp Inc. have announced at least $26 billion of writedowns in the past two months.
On the Comex, futures rose 0.4 percent to $1,339.20 an ounce today. This year, the price has lost 20 percent, heading for the first annual decline since 2000.
Assets in the SPDR fund have tumbled 32 percent in 2013 to the lowest since February 2009. On April 12, gold entered a bear market, falling more than 20 percent from the record settlement of $1,891.90 in August 2011.
Paulson Commitment
At an investor conference on July 17, Paulson affirmed a commitment to investing in the metal and stocks of producers to hedge against currency debasement as central banks pump money into economies. The firm didn’t provide additional comment yesterday on its SPDR stake. The hedge fund made $15 billion for investors in 2007 by betting against subprime mortgages before the housing collapse.
Paulson sold call options to buy 360,000 shares in Toronto-based Barrick, the biggest gold producer, filings show.
In the second quarter, Soros Fund Management LLC sold 530,900 SPDR shares, along with its entire stake of 2.67 million shares of the Market Vectors Gold Miners ETF, government filings showed. Loeb’s Third Point LLC sold 130,000 SPDR shares.
Michael Vachon, a spokesman for Soros, could not be reached by telephone at his office after regular business hours. Elissa Doyle, a spokeswoman for Third Point, declined to comment on the holdings. The hedge funds are based in New York.
Gold is heading for the biggest annual loss since 1997. In 2013, the MSCI All-Country World Index of equities has climbed 11 percent, and the Bloomberg Dollar Index gained 3.7 percent. the Standard & Poor’s GSCI Spot Index of 24 raw materials has dropped 0.2 percent and the Bloomberg U.S. Treasury Bond Index declined 3.1 percent.
Global ETPs
The value of global gold ETPs has plummeted by $58.1 billion this year.
Gold probably won’t see any “lasting gains” until investors stop selling ETP holdings, Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt, said on Aug. 8.
The metal jumped 70 percent from the end of 2008 through June 2011 as the Fed bought more than $2 trillion of debt. Fed Chairman Ben S. Bernanke is contemplating how to finish a third round of so-called quantitative easing that has swelled the central bank’s balance sheet to a record $3.59 trillion.
Stimulus Probability
The central bank probably will reduce monetary stimulus next month after gains in the economy, according to 65 percent of economists surveyed by Bloomberg.
Paulson posted gains in all four of his hedge-fund firm’s main strategies in July as his Recovery fund recouped losses incurred in 2011, a person familiar with the matter said on Aug. 6. Last month, gold jumped 7.3 percent, the most since January 2012, partly on demand for bars and jewelry in Asia. The bear market dragged down Paulson’s Advantage funds and PFR Gold Fund.
Money managers cut their bullish gold bets by 27 percent to 48,103 futures and options in the week ended Aug. 6, U.S. Commodity Futures Trading Commission data show on Aug. 9. The net-long positions dropped 76 percent since early October.
David Einhorn’s Greenlight Capital Inc. sold its entire stake of 1.97 million shares in Barrick in the second quarter, a government filing showed yesterday. Jonathan Gasthalter, a spokesman, declined to comment.
Einhorn has said stimulus by central banks will fuel inflation and increase gold’s value.
Livelihoods Roiled
Gold’s plunge, including two days in April when the price plummeted the most since 1980, roiled livelihoods from the 1 million miners in Ghana who scour in the dirt for the metal to thousands of executives and geologists at mining exploration firms that are running out of cash in Vancouver. Gone are jobs for auditors, bankers and analysts in the finance capitals of Toronto and London. Some investors who bet big and lost are scaling back retirement plans.
Yesterday, Harmony Gold Mining Co., based in Randfontein, South Africa, suspended its dividend after its quarterly loss almost quadrupled, joining AngloGold Ashanti Ltd. and Sibanye Gold Ltd. in scrapping the payout in the bear market.
“Confidence in gold is rattled over the short term, and we saw rotation of funds out of gold into equities that continue to march higher,” Scott Gardner, who helps manage $400 million at Verdmont Capital SA in Panama City, said in a telephone interview.
----With assistance from Kelly Bit in New York, Swansy Afonso in Mumbai, Kevin Crowley in Johannesburg, Peter Robison in Seattle and Ekow Dontoh in Accra, Ghana. Editors: Patrick McKiernan, Steve Stroth, Jake Lloyd-Smith
To contact the reporter on this story: Debarati Roy in New York at droy5@bloomberg.net
To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net
