Hedge funds lose faith in gold

  @CNNMoneyInvest August 15, 2013: 1:48 PM ET
gold ytd

Click the chart to track the price of gold and other commodities.

NEW YORK (CNNMoney)

Hedge fund manager John Paulson has been a huge gold bull for years, but the billionaire may be starting to lose faith in the metal. And he's not alone.

Paulson slashed his position in the SPDR Gold Trust ETF (GLD), one of the most popular funds for investors seeking exposure to physical gold, by more than half in the second quarter "due to a reduced need for hedging," the firm said in an e-mailed statement. That's the largest chunk he has sold since he first announced his big bet on gold in early 2009.

Meanwhile, fellow billionaire investor George Soros, who has been lowering his exposure to gold for some time, completely dumped his stake in the gold ETF in the second quarter. So did Dan Loeb's Third Point Capital.

These hedge fund managers sold as gold prices plunged 23% during the second quarter to a nearly 3-year low around $1,200 an ounce. The sell-off was driven by worries that the Federal Reserve would scale back, or taper, its bond buying program sooner rather than later, which in turn would take away gold's value as a hedge against inflation.

But with fears about the impact of tapering dissipating, gold prices have begun to recover. Some analysts have even suggested that the precious metal's price has bottomed.

Related: Consumer demand for gold hits record high

So has the so-called smart money made a dumb move with gold? For what it's worth, the gold ETF is still the biggest holding in Paulson's fund, making up nearly 9% of his portfolio.

But Paulson's big step back is still curious since the 57-year-old billionaire spoke just last month about how he thinks gold is a winning bet over the long term since inflation is bound to pick up eventually.

"The rationale for owning gold has not gone away," he said at CNBC's Delivering Alpha conference in Manhattan in July. "The consequences of printing money over time will be inflation. It's difficult to predict when."

India's love for gold hurts economy

And even though he cut is exposure to physical gold, Paulson did increase his stake in miner Freeport-McMoRan Copper & Gold (FCX, Fortune 500) by more than 70%. To top of page



Join the Conversation
Markets
Sponsored by
Index Last Change % Change
Dow 16,501.65 0.00 0.00%
Nasdaq 4,148.34 21.37 0.52%
S&P 500 1,878.61 3.22 0.17%
Treasuries 2.69 0.00 0.07%
Data as of 4:01am ET
Company Price Change % Change
Facebook Inc 60.87 -0.49 -0.80%
Bank of America Corp... 16.34 -0.03 -0.18%
Microsoft Corp 39.86 0.17 0.43%
Verizon Communicatio... 46.28 -1.15 -2.42%
Micron Technology In... 26.16 -0.09 -0.34%
Data as of Apr 24
Overnight Avg Rate Latest Change Last Week
30 yr fixed4.24%4.32%
15 yr fixed3.25%3.36%
5/1 ARM3.27%3.37%
30 yr refi4.28%4.31%
15 yr refi3.30%3.34%
View rates in your area
 
Find personalized rates:
Rate data provided
by Bankrate.com
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.