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Soros Sells Gold ETPs as Paulson Keeps Bet on Holding the Metal

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Billionaire investor George Soros
Billionaire investor George Soros. Photographer: Stan Honda/AFP/Getty Images

May 17 (Bloomberg) -- Billionaire George Soros sold most of his physical gold holdings in the first quarter as bullion prices rallied toward a record, while hedge-fund manager John Paulson retained his stake in a bet the rally would continue.

Soros Fund Management LLC sold 99 percent of its holding in the bullion-backed SPDR Gold Trust, all 5 million shares in the iShares Gold Trust and cut stakes in NovaGold Resources Inc. and Kinross Gold Corp., a government filing yesterday showed. Paulson & Co. maintained 31.5 million shares in the SPDR Gold Trust, and boosted holdings of mining companies including Barrick Gold Corp. and Gold Fields Ltd., its filing showed.

The decade-long surge in gold lured investors seeking better returns than equities or bonds and an alternative to currencies, boosting purchases of exchange-traded products such as SPDR and iShares to a record in December. Accelerating inflation, Europe’s debt crisis, a weakening dollar and fighting in Libya boosted the spot price to an all-time high of $1,577.57 an ounce on May 2. By May 13, ETP holdings had slipped 3.6 percent from their peak.

“We’re somewhere in the fourth or fifth inning of the gold rally, and they’re positioning for the last half of the game,” said James Dailey, who manages $200 million at TEAM Financial Asset Management LLC in Harrisburg, Pennsylvania. “As the precious metals rally ends, you’ll get a transition toward related equities.” Dailey said he expects gold to reach $2,500 over the next two years.

Stocks, Gold

Mining stocks trailed gold in the past year as the metal advanced 22 percent. During that period, the Philadelphia Stock Exchange Gold & Silver Index of 16 mining companies advanced 8.6 percent. Kinross Gold slumped 22 percent and Randgold Resources Ltd. fell 15 percent, while Freeport-McMoRan Copper & Gold Inc. advanced 39 percent.

Soros Fund Management, based in New York, held 49,400 shares of SPDR Gold Trust as of March 31, compared with 4.72 million at the end of the fourth quarter, according to the filing with the U.S. Securities and Exchange Commission. Soros sold 9.41 million shares of NovaGold Resources and 2.58 million shares of Kinross, while buying 301,300 shares of Freeport and 7,600 shares of Goldcorp, the filing shows. Michael Vachon, a spokesman for Soros, declined to comment on the sale.

Paulson, 55, who bet against U.S. mortgage markets amid the subprime crisis, is also the biggest owner of Johannesburg-based AngloGold Ashanti Ltd., Africa’s largest producer, filings and data compiled by Bloomberg show. New York-based Paulson’s funds generated profits of more than $3 billion in 2007.

Armel Leslie, a Paulson spokesman, declined to comment before the filings were made public.

‘Ultimate Bubble’

“While backward-looking, it is the best available indicator of investors’ precious-metals exposure,” Edel Tully, an analyst at UBS AG in London, said May 9.

Investors in 10 gold-backed exchange-traded products owned 2,041 metric tons as of May 13 valued at $98 billion with gold at $1,493.60, according to Bloomberg calculations. Gold futures settled at $1,490.60 in New York yesterday.

Soros Fund Management manages about $28 billion. The company’s SPDR Gold Trust holding was worth $6.9 million as of March 31, the filing showed, compared with $655 million Dec. 31.

Soros described gold in January last year as “the ultimate asset bubble.” In a Nov. 15 speech the 80-year-old investor said that conditions for the metal to keep rising were “pretty ideal” and in January this year he said the boom in commodities may last “a couple of years” longer.

Low Rates

Investor demand for precious metals accelerated after the collapse of Lehman Brothers Holdings Inc. in September 2008 and as governments and central banks pumped trillions of dollars into the world financial system. The Federal Reserve has held interest rates near zero since December 2008 and Chairman Ben S. Bernanke has said he’s in no hurry to raise interest rates and that he will keep reinvesting proceeds of maturing debt held by the central bank in bonds.

The European Central Bank last month raised rates for the first time in almost three years to cool accelerating consumer prices. President Jean-Claude Trichet said May 9 that the world’s central bankers are united in fighting inflation. Some investors buy bullion as an inflation hedge, while higher interest rates increase the opportunity cost of holding the non-interest-bearing metal.

Soros’s biggest holding at the end of the first quarter was Adecoagro SA, the South American farmland venture that sold shares to the public in January.

Soros Holdings

Along with gold investments, Soros reduced his stakes in Delta Air Lines Inc., Coca-Cola Enterprises Inc. and Ford Motor Co., while divesting holdings in Plains Exploration & Production Co. and Best Buy Co. The hedge fund boosted its stakes in Motorola Solutions Inc. and Wells Fargo & Co.

Gold ETP holdings declined 69.94 tons, or 3.3 percent, in the first quarter, the first drop in a year, as prices increased 0.8 percent. Silver holdings rose 1.9 percent, palladium assets fell 1 percent, while platinum holdings gained 12 percent.

Some “ETF liquidation in the quarter was not actually outright gold selling,” UBS’s Tully said. “In some cases, investors switched their gold exposure from ETP-based to allocated. This somewhat distorts the ETP ownership picture.”

Eric Mindich’s Eton Park Capital Management LP reduced its stake in the SPDR Gold Trust by 48 percent during the first quarter, according to a government filing. Eton Park sold 2.165 million shares, cutting its holdings to 2.328 million as of March 31, the filing shows.

Touradji Capital

Touradji Capital Management LP, founded by Paul Touradji, sold all of its assets in the SPDR Gold Trust during the first quarter. The fund held no shares of the exchange-traded product as of March 31, compared with 173,000 shares at the end of the fourth quarter, the company said in a filing last week. Touradji also reduced its holdings of Barrick Gold, the world’s largest producer of the precious metal.

Money managers who oversee more than $100 million in equities must file a Form 13F with the Securities and Exchange Commission within 45 days of each quarter’s end to show their U.S.-listed stocks, options and convertible bonds. The filings don’t show non-U.S. securities or how much cash the firms hold.

ETPs trade on exchanges, with each share representing metal held in a vault.

To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net

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

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