Paulson hangs on to gold in third quarter; Soros cuts back

[November 15, 2014]  By Frank Tang
 
 NEW YORK (Reuters) - Hedge fund Paulson & Co maintained its stake in the world's biggest gold-backed exchange-traded fund, SPDR Gold Trust, in the third quarter, bolstering the confidence of bullion investors at a time when an improving U.S. economic outlook pummeled gold prices.

Legendary investor George Soros, however, has sharply cut his stake in Barrick Gold Corp and several gold mining company ETFs after boosting his investments in the metal during the second quarter.

Investors pay close attention to the quarterly filings by Paulson and other notable hedge fund managers because they provide the best insight into whether so-called smart money sentiment has changed toward gold as a hedge against inflation and economic uncertainty.

New York-based Paulson & Co, led by longtime gold bull John Paulson, owned around 10.2 million shares of the ETF worth $1.19 billion on Sept. 30, a filing with the U.S. Securities and Exchange Commission showed on Friday. That represents a loss of around $121 million as the price of gold fell around 9 percent in the third quarter.

"There are lots of factors pushing against gold right now," said Mihir Dange, a COMEX gold options floor trader. "Anything that boosts the confidence for gold and commodities is a good thing, especially after the Fed ended QE3."

Worries the Federal Reserve will start raising interest rates soon after it ended the third round of a monthly bond-buying program, also known as quantitative easing (QE3) in October have dented bullion's appeal as a hedge.

Paulson's $400 million PFR Gold Fund was up 11 percent year-to-date through the end of September, according to a person familiar with his firm.

In the second quarter of 2013, Paulson slashed its stake by more than half when bullion prices plummeted $225 an ounce over two days in mid April, a record two-session drop for gold.

"Paulson is obviously still holding gold for a good reason and that reason has not changed," said Axel Merk, president and chief investment officer at Merk Investments in Palo Alto, California, with currency mutual-fund assets worth about $400 million.

Gold remains attractive for institutional investors as long as real interest rates, calculated by deducting inflation rates from nominal interest rates, stay negative, Merk said.

Soros Fund Management sharply cut his stake in Market Vectors Gold Miners ETF to around 1 million shares valued at $22 million at the end of the third quarter, compared with 2.1 million shares worth $54 million in the second quarter.

Soros also switched to 1 million put options in the Gold Miners ETF in the third quarter, in sharp contrast to the 1.3 million call options he held in the second quarter.

In addition to trimming his stake in Toronto-based Barrick, one of the world's largest gold producers, Soros also cut his stake in Market Vector Junior Gold Miners ETF.

(Additional reporting by Jennifer Ablan in New York; editing by Diane Craft and Andre Grenon)

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