Billionaire hedge fund manager John Paulson, who told investors as recently as last month that they should own gold (COMEX:GCZ13), 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% 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.
“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% 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% above the average in the past 100 days for this time, according to data compiled by Bloomberg The metal has climbed 15% from a 34-month low of $1,179.40 on June 28.
Silver futures for September delivery surged 5.3% 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%, heading for the first annual decline since 2000.
Assets in the SPDR fund have tumbled 32% in 2013 to the lowest since February 2009. On April 12, gold entered a bear market, falling more than 20% from the record settlement of $1,891.90 in August 2011.