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Gold Bull Paulson Cuts SPDR Stake by Half in Bear Market

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. It also sold options to buy shares in Barrick Gold Corp.

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.

Photographer: Rick Maiman/Bloomberg

John Paulson, president and co-fund manager of Paulson & Co. Inc. Close

John Paulson, president and co-fund manager of Paulson & Co. Inc.

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Photographer: Rick Maiman/Bloomberg

John Paulson, president and co-fund manager of Paulson & Co. Inc.

‘Armageddon Premium’

“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.”

In the second quarter, the gold collapse led to a loss of $44.7 billion in the global value of ETPs. The World Gold Council said today that global demand fell to a four-year low on record ETP sales and less central bank buying. Mining companies including Barrick and Goldcorp Inc. have announced at least $26 billion of writedowns in the past two months.

On the Comex in New York, gold futures for December delivery jumped 2.1 percent to close at $1,360.90 an ounce today, the biggest gain for a most-active contract since July 22. After the settlement, the price reached $1,369.60, the highest for a most-active contract since June 19.

Trading was 21 percent above the average in the past 100 days for this time, according to data compiled by Bloomberg. The metal has climbed 15 percent from a 34-month low of $1,179.40 on June 28.

Photographer: Jerome Favre/Bloomberg

Billionaire George Soros, founder of Soros Fund Management LLC. Close

Billionaire George Soros, founder of Soros Fund Management LLC.

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Photographer: Jerome Favre/Bloomberg

Billionaire George Soros, founder of Soros Fund Management LLC.

Silver futures for September delivery surged 5.3 percent to $22.935 an ounce on the Comex, the biggest gain since July 22. The price reached $23.19, the highest since May 22.

This year, gold has dropped 19 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.

Paulson Commitment

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.

Paulson sold call options to buy 360,000 shares in Toronto-based Barrick, the biggest gold producer.

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. Loeb’s Third Point LLC sold 130,000 SPDR shares.

Photographer: SeongJoon Cho/Bloomberg

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. Close

John Paulson the biggest investor in the SPDR Gold Trust, reduced his holdings by 53... Read More

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Photographer: SeongJoon Cho/Bloomberg

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.

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.

Stocks, Bonds

Gold is heading for the biggest annual loss since 1997. In 2013, the MSCI All-Country World Index of equities has climbed 10 percent, and the Bloomberg Dollar Index gained 3.5 percent. The Standard & Poor’s GSCI Spot Index of 24 raw materials has advanced 0.3 percent, and the Bloomberg U.S. Treasury Bond Index declined 3.1 percent.

The value of global gold ETPs has plummeted by $56.1 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.

Stimulus Probability

The central bank probably will reduce monetary stimulus next month after gains in the economy, according to 65 percent of economists surveyed by Bloomberg.

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 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.

Livelihoods Roiled

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.

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.

----With assistance from Kelly Bit in New York, Swansy Afonso in Mumbai, Kevin Crowley in Johannesburg, Peter Robison in Seattle and Ekow Dontoh in Accra, Ghana. Editors: Patrick McKiernan, Millie Munshi

To contact the reporter on this story: Debarati Roy in New York at droy5@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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