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Hedge funds making big bets on gold and gold stocks
Regulatory filings show that hedge funds managed by John Paulson held almost 9% of all outstanding GLD (the gold bullion ETF) shares at the end of March, a position with a current market value of almost US$3B. Paulson’s funds also owned about 15% of GDX (the gold mining stock ETF), 11% of Anglogold (AU), 4% of Kinross (KGC), and 3% of Goldfields (GFI).
We would not interpret Paulson’s gold-stock positions as company-specific endorsements as he is probably just building up exposure to gold anyway he can. It’s easy to invest $5M in the gold sector of the stock market, meaning that there is ample liquidity to invest such an amount without influencing stock prices. However, it’s a different story if you want to invest $5B. If you have billions to invest and the gold sector is your preferred location then you really have no choice other than ETFs and a tiny selection of large-cap stocks. Also, you will probably want to take advantage of situations where a large stakeholder in a major gold producer is eager to make an exit, as was the case in March when Mr. Paulson purchased an 11.3% stake in Anglogold from Anglo American.
David Einhorn of Greenlight Capital is another well-known hedge fund manager who has accumulated substantial exposure to gold-related investments over the past several months.
A shift by some hedge funds towards gold and gold stocks is not significant in and of itself. What is significant is that gold and gold stocks are attracting the attention of the hedge funds that have had the most success over recent years. Having profited massively by correctly anticipating the bursting of the credit bubble and its effects on the financial sector, it seems that Paulson and Einhorn now see gold as either the next great profit opportunity or the best way to preserve the huge profits that were made over the past two years.
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