Billionaire Paulson Sticks With Gold ETF Stake as Prices Rebound

May 16, 2014

New York (May 16)  Billionaire hedge fund manager John Paulson stuck with his holding in the biggest exchange-traded product backed by gold as prices rebounded on the escalating tension between Ukraine and Russia.

Paulson & Co., the largest investor in the SPDR Gold Trust (GLD), kept its stake at 10.23 million shares as of March 31, a government filing showed yesterday. The holdings were unchanged for the third straight quarter.

Gold rose 7.9 percent in 2014, rallying after last year’s 28 percent plunge. Prices reached a six-month high in March as Russia annexed the Crimean peninsula. Bullion also climbed as an unusually frigid winter stymied the U.S. economy.

“Some people came back to gold betting against an improving U.S. economy, and then the Ukraine crisis also attracted some investors,” said Rob Haworth, a Seattle-based senior investment strategist at U.S. Bank Wealth Management, which oversees $120 billion.

Gold for immediate delivery fell 0.2 percent to $1,293.25 an ounce at 4:35 p.m. in Singapore. Prices jumped 6.9 percent in the first quarter.

Money managers raised bets on a gold rally by 14 percent to 102,895 futures and options as of May 6, the most since February, U.S. government data show. The holdings more than tripled last quarter.

ETP Holdings

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.

Armel Leslie, a spokesman for Paulson & Co. who works for WalekPeppercomm, declined to comment on the filing.

Holdings in global ETPs backed by gold reached the lowest since 2009 on May 14. The assets tumbled 33 percent last year, wiping more than $73 billion from the value of the funds.

“While we remain bearish on gold, escalating geopolitical tensions in Ukraine have offset stronger” signs of growth this year, Goldman Sachs Group Inc. said in a report dated May 13. “We continue to expect a sequential acceleration in U.S. economic activity, and hence for gold prices to decline.”

At the same time, “the uncertain outlook in Ukraine may continue to delay this move lower,” Goldman analysts led by New York-based Jeffrey Currie said in the report. The bank reiterated it expects prices to drop to $1,050 in 12 months.

Soros Fund

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

Bullion climbed 70 percent from December 2008 to June 2011 as the Federal Reserve bought debt and held borrowing costs near zero percent. While the pace of bond buying is slowing, Fed Chair Janet Yellen said May 7 the U.S. economy still requires a “high degree of monetary accommodation,” citing the slowdown in housing as a risk as well as “heightened geopolitical tensions.”

The cost of living in the U.S. rose in April by the most in almost a year, a sign inflation may pick up as demand in the world’s largest economy recovers from a weak first quarter.

“Central banks across the globe have pumped in a lot of money into the system, and that at some point will trigger inflation,” Peter Sorrentino, who helps manage about $3.8 billion at Huntington Asset Advisors in Cincinnati, said in a telephone interview. “We probably could see some momentum players return to the gold market.”

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