Gold Bull Paulson Cuts SPDR Stake by Half in Bear Market

[AlphaQuant]

Paulson throws in the towel.

http://www.bloomberg.com/news/2013-08-14...s-out.html
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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 a bear 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.
Enlarge image Billionaire George Soros
Billionaire George Soros, founder of Soros Fund Management LLC. Photographer: Jerome Favre/Bloomberg
Enlarge image Billionaire John Paulson
John Paulson, president and co-fund manager of Paulson & Co. Inc. Photographer: Rick Maiman/Bloomberg
Enlarge image Paulson Cuts SPDR Gold Stake 53% as Soros Sells Entire Holding
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
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 and Daniel Loeb sold their entire SPDR stakes in the past quarter, U.S. Securities and Exchange Commission filings showed.
“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.”
Writedowns
In the second quarter, the gold collapse led to a loss of $44.7 billion in the global value of ETPs. Mining companies including Barrick Gold Corp. and Goldcorp Inc. have announced at least $26 billion of writedowns in the past two months.
On the Comex in New York, gold futures rose 1 percent to settle at $1,333.40 an ounce yesterday. This year, the price has dropped 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.
Currency Debasement
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.
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 3.9 percent. the Standard & Poor’s GSCI Spot Index of 24 raw materials has dropped 0.4 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.
The central bank probably will reduce monetary stimulus next month after gains in the economy, according to 65 percent of economists surveyed by Bloomberg.
Asia Demand
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, the largest producer of the metal, 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.
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.
Harmony Dividend
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.

[felixleong]

wow I'm quite surprised that Paulson is cutting his position on gold, I thought he was 100% sure about longing gold

I guess maybe he should had retired after making those billions during the GFC, hard to be right all the time.

[specuvestor]

My stance is that he will be the best contrarian indicator ie Gold price bottomed

[freedom]

I suspect that he redeem his gold ETF as he prefers physical gold.

The media probably is misleading the public, imo.

Can you take physical possession of the gold?

The Trustee, The Bank of New York Mellon, does not deal directly with the public. The Trustee handles creation and redemption orders for the Trust's shares with Authorized Participants, who deal in blocks of 100,000 shares. An individual investor wishing to exchange shares for physical gold would have to come to the appropriate arrangements with his or her broker.

I believe that's what Paulson did to his gold etf holdings. For investors such as Paulson, it is unthinkable that he would cut loss at the bottom when he has the holding power.

[freedom]

During the peak, GLD(the ETF traded on NYSE) held more than 1350 tons of gold. Til yesterday(August 21th, 2013), it only held 913 tons of gold.

So where was the rest of its gold holdings? If I am not wrong, it was redeemed by the holders of GLD shares such as John Paulson and George Soros. Don't be fooled by those headline news that these investors were selling gold when gold was the cheapest in a long time.

[sgd]

All the gold bulls are wrong, already said so from beginning of this year

If all the big trading countries are avoiding US treasuries and putting their money into gold eventually the Americans will lose their global influence and Fed could find it's powers and wings being "clipped" when treasuries lose appeal.

So now that US economy seems to be out of the deep mud, it's time for the Fed to stop easy money and stop pressing on the acceleration gas pedal I predict we will see the real regime and drastic changes to come from the new Fed Chairman or Chairwoman, who is going to be a hawk on interest rates.

The bond markets already pre-empting itself for higher interest rates and bond prices have started come down. If bond prices come down drastically and traders lose big money in bonds there will be a lot of unwinding of position in general stock market. I see the only things like energy commodities will not be so much affected by interest rates, stocks like banks, insurance companies may retreat initially if there is a market rout but should recover moving forward and benefit as higher interest rates means better returns from investing in higher yielding assets.

[AlphaQuant]

So where was the rest of its gold holdings? If I am not wrong, it was redeemed by the holders of GLD shares such as John Paulson and George Soros. Don't be fooled by those headline news that these investors were selling gold when gold was the cheapest in a long time.

that might be true - note that gold futures are trading in backwardation i.e. spot is higher than near term futures. Seems to be a heavy bid for spot gold for delivery.

http://www.gotgoldreport.com/2013/08/wha...gold-.html

[specuvestor]

Firstly, if Paulson is exchanging shares for physical gold, it should not impact spot gold ceteris paribus.

Secondly there is the conundrum of what it means when "The New York-based firm, which manages $18 billion, cut its ownership for the first time since 2011 “due to a reduced need for hedging,” according to an e-mailed response to questions." What are they hedging actually if they are positive Gold? They were negative US$ hence "hedge" by long gold?

Thirdly Soros and Loeb have sold as well.

Fourthly according to wikipedia, the trust is structured such that there is a balancing mechanism. What that means is that as people oversold the trust vs spot Gold, the FM redeems the trust, take the gold and sell spot. hence the Gold holdings will go down. In that sense it is an open end trust.

"If the share price differs from the gold market price, the fund's manager exchanges blocks of 100,000 shares for 10,000 ounces of gold. The possibility of such exchanges keeps the ETF price roughly in line with the gold price, although the prices can diverge during each day"
http://en.wikipedia.org/wiki/SPDR_Gold_Shares

Like Ackman on HerbalLife, Paulson suffers from big mouth syndrome. When the market knows your hugely skewed AND in-love positions, from recent London Whale to copper trader Hamanaka, it is usually not a good idea for profits, except for ego. That is why IMHO when capitulation happens it is usually the bottom as the perma bear/bull bails.

[Stockerman]

If interest rate is going up and will go up from here in US, why put money in Gold? It does not give u dividend yield.
Also, USD dollar is going into long term uptrend from here. With the negative correlation with Gold, will we see more drop in Gold?

[freedom]

There is no evidence that Paulson sold his share of GLD instead of exchanging the GLD share to physical gold. Of course headline news would just tell you that. It is up to every investor to make their own judgement to interpret what's going on.

"What that means is that as people oversold the trust vs spot Gold, the FM redeems the trust, take the gold and sell spot." that's simple ETF arbitrage, but there wasn't any meaningful discount to the spot market for such arbitrage to work. So unlikely that the arbitrager was in the work for a few hundreds of tons of physical gold. Also, redemption does not always result in sale in spot market. Fund manager can buy ETF then redeem it to get underlying shares instead of buying the underlying shares in the physical market which may drive certain share up unnecessarily. If physical gold market is not liquid enough, the cheapest way to buy physical gold would be buying the ETF(GLD is very liquid) and redeem it.