All That Glitters Is Gold For Paulson Hedge Fund

Aug 15 2014 | 10:33am ET

Debarati Roy (Bloomberg) -- Billionaire hedge fund manager John Paulson stuck with his holding in the biggest exchange-traded product backed by gold as prices rose on demand for a haven.

Paulson & Co., the largest investor in the SPDR Gold Trust, kept its stake at 10.23 million shares in the three months ended June 30, a government filing showed yesterday. The holdings were unchanged for the fourth straight quarter.

Gold rallied 9.3 percent in 2014, defying bearish forecasts from Goldman Sachs Group Inc. and outperforming equities and bonds amid escalating conflicts in Eastern Europe and the Middle East. The haven appeal may be waning amid concern that the Federal Reserve will raise interest rates as the U.S. economy accelerates, according to Lance Roberts, the chief strategist for STA Wealth in Houston.

“Gold has been reacting to the headlines, but everyone is not jumping in as there is a lot of optimism about the U.S. economic growth,” Roberts, who helps oversees $600 million, said in a telephone interview Aug. 13. “Concerns about the U.S. raising rates will continue to weigh on gold.”

Assets in the SPDR Gold Trust are down 0.3 percent this year to 795.6 metric tons, after a 41 percent plunge in 2013. Holdings in global ETPs reached 1,707.9 tons on June 20, the the lowest since 2009. They tumbled 33 percent last year, helping to erase more than $73 billion from the value of the funds.

Gold Prices

In New York, gold for December delivery fell 0.1 percent to $1,314.50 an ounce on the Comex at 3:06 p.m. in Singapore, heading for a second weekly advance.

Gold tumbled 28 percent in 2013, the biggest drop in three decades, as U.S. equities rallied to a record and inflation remained muted amid speculation that the Fed would taper the pace of monetary stimulus.

Paulson started his foray into gold in early 2009, betting that prices would rise amid unprecedented monetary stimulus. His tone changed last year as the metal headed for the first annual decline since 2000, telling clients in November that he personally wouldn’t invest more money in his bullion fund.

Paulson increased his holdings in Agnico Eagle Mines Ltd. and maintained his stake in NovaGold Resources Inc., the filing shows. Armel Leslie, a spokesman for Paulson & Co. with WalekPeppercomm, declined to comment.

Soros Fund

Soros Fund Management LLC decreased its stake in Barrick Gold Corp., the largest producer, in the second quarter and bought more shares in the Market Vectors Gold Miners ETF, according to a filing. Michael Vachon, a spokesman for Soros, did not respond to a voice mail and an e-mail.

Money managers who oversee more than $100 million in equities must file a Form 13F within 45 days of each quarter’s end to list their U.S.-traded stocks, options and convertible bonds. The filings don’t show non-U.S. securities or how much cash the firms hold.

Gold will drop to $1,050 in 12 months, Goldman reiterated in a July 23 report, unchanged from its outlook at the start of the year. The bank cited accelerating U.S. economic growth.

Speculators decreased bets on a gold rally by 15 percent to 104,111 futures and options in the week ended Aug. 5, the biggest drop in two months, U.S. government data show. Open interest in New York futures and options slid 2.1 percent in the period to 563,036 contracts, the lowest since September 2009.

Investors have stayed away from the metal amid mounting speculation that the Fed will increase its benchmark lending rate. The central bank reduced its monthly bond-buying program to $25 billion on July 30, making a sixth consecutive $10 billion cut, while it held borrowing costs near zero percent.

Singer Outlook

Bullion jumped 70 percent from December 2008 to June 2011 as the Fed bought debt and held interest rates at an all-time low.

Paul Singer, founder of the $24.8 billion Elliott Management Corp., said in a letter to investors dated July 28 that gold presents a “unique and not really very expensive” trading opportunity, anticipating prices may rise on mounting inflation concerns.

“People will want to hold gold because of the global political turmoil,” Jeff Sica, who helps oversee $1 billion at Sica Wealth Management in Morristown, New Jersey, said in a telephone interview Aug. 13. “Also, you need to hedge against future inflation.”

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