Some of the most powerful US funds have shifted their allocations in gold, but drawing conclusions from it remains as difficult as ever.
John Paulson, George Soros and David Einhorn (of Greenlight Capital) are some of the most influential investors in gold. In fact such is their status that their predictions can become self-fulfilling.
News out this week that Paulson shed a third of his gold ETF holdings in September from his $30bn fund is surely cause for concern, particularly given that, notwithstanding the sale, he still remains the largest holder of the SPDR gold trust. Paulson has an enviable record and where he leads, others follow. It remains unclear, however, whether this is a fundamental shift in investment strategy, or whether it is a case of needing to take profit in bullion to cover losses in other asset classes, or whether it is a shift from the ETF into physical bars (to reduce costs) which of course would be price neutral. Paulson bought 31.5 million gold ETF shares back in Q1 2009 in which time the value has increased from £2.84b to $5.3b.
George Soros has been more transparent in his views, described gold as being "in a bubble" early last year. However he held on nearly a year before selling 99% of his bullion position in the first quarter 2011 which was well before the all-time high seen in September this year. At the time he said he expected mining shares to benefit as the precious metals rally petered out... something that David Einhorn seems to have heeded.
David Einhorn split his investments equally between the gold ETF and bullion mining shares — the former outperforming the latter by a significant margin. Like Paulson, his other funds were performing poorly; like Soros, he had greater faith in holes in the ground than in the metal that came from them (see chart below) and has shifted his allocation towards the mining shares at the expense of gold itself.
Meanwhile, holdings of global gold ETFs have risen by over 800,000 ounces this month. In October global holdings of gold ETFs rose by 852,000 ounces to 67.907 million ounces, more than offsetting the 444,000 ounce outflow in September and the 297,000 ounce outflow in August. Clearly if the big names are sellers, then there are others ready to take their places.
In addition to some long liquidation by the leading gold ETF holders was the strong selling by COMEX futures traders, which undoubtedly turned the fall in early September into a temporary rout. Since then the speculators on COMEX are rebuilding their longs, much like Soros is.
It is hard to draw much by way of conclusions from these coming and goings, but it does appear that those who have a track record in backing winners broadly see it that way too. If Soros and the COMEX lot are coming back into bullion then it may only be a question of time before Paulson reverses his recent decision.
Ross Norman is the owner and chief executive officer of the London-based gold broker Sharps Pixley Ltd.