Paulson advises hold, sells half his fund’s gold

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 Wednesday. 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-mail response to questions. It also sold options to buy shares in Barrick Gold in the future, filings show.

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.

He saw the Armageddon premium come off sharply in the second quarter, and people prefer stocks as 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. Gold demand fell to a four-year low in the period on record ETP sales and less central bank buying, the World Gold Council said Wednesday. Mining companies including Barrick and Gold have announced at least $26 billion of writedowns in the past two months.

On the Comex, futures rose 0.4 percent to $1,339.20 an ounce today. This year, the price has lost 20 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.

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 on Wednesday 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, filings show.

In the second quarter, Soros Fund Management sold 530,900 SPDR shares, along with its entire stake of 2.67 million shares of the Market Vectors Gold Miners, government filings showed. Loeb Third Point sold 130,000 SPDR shares.

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.

Gold is heading for the biggest annual loss since 1997. In 2013, the MSCI All-Country World Index of equities has climbed 11 percent, and the Bloomberg Dollar Index gained 3.7 percent. The Standard & Poor’s GSCI Spot Index of 24 raw materials has dropped 0.2 percent and the Bloomberg U.S. Treasury Bond Index declined 3.1 percent.

The value of global gold ETPs has plummeted by $58.1 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.

Bloomberg