Soros Leads Gold-Stake Cuts Before Bear Market Drop

By Debarati Roy

Billionaire investor George Soros joined Northern Trust Corp. and BlackRock Inc. in cutting holdings of exchange-traded products backed by gold before a bear market in prices last month, while John Paulson maintained a stake that lost about $165 million in the first quarter.

Soros Fund Management LLC lowered its investment in the SPDR Gold Trust, the biggest such fund, by 12 percent to 530,900 shares as of March 31, compared with three months earlier, a Securities and Exchange Commission filing showed yesterday. Funds run by Northern Trust and BlackRock showed reductions of more than half, according to earlier filings. Paulson & Co., the largest investor in SPDR, held 21.8 million shares, while Schroder Investment Management Group bought 2.1 million.

Gold prices that reached a record in 2011 tumbled into a bear market last month, erasing $42 billion from the value of ETPassets this year, according to data compiled by Bloomberg. Some investors lost faith in the metal as a store of value, favoring riskier assets, as equities soared to all-time highs and unprecedented stimulus measures by the world’s central banks failed to spur inflation. After the longest rally in nine decades, gold is headed for its first annual decline since 2000.

‘Nasty Time’

“It’s a very nasty time for gold investors as prices are dropping while stocks keep raging ahead,” Michael Gayed, the co-portfolio manager of ATAC Inflation Rotation Fund at New York-based Pension Partners LLC, which advises on about $270 million in assets, said in a telephone interview. “The emotional double whammy has accentuated the selling.”

Gold futures tumbled 17 percent to $1,393.90 an ounce on the Comex in New York this year as the Standard & Poor’s GSCI Spot Index of 24 raw materials dropped 3.4 percent and the MSCI All-Country World Index of equities gained 11 percent. A Bank of America Corp. index shows Treasuries dropped 0.29 percent.

Soros Fund Management’s first-quarter reduction in SPDR holdings followed a 55 percent cut in the final three months of last year, an earlier filing showed. Gold has ceased to be a haven after the metal fell when the euro was close to collapse last year, Soros said in an interview with the South China Morning Post posted on the newspaper’s website on April 8.

Global ETP holdings have tumbled 16 percent in 2013 after rising every year since the first product was listed in 2003, according to data compiled by Bloomberg. Assets in SPDR have plunged 22 percent, and they will probably drop by an additional 2 million to 4 million ounces after slumping 9.7 million ounces since mid-December, Deutsche Bank AG said in a report on May 14.

Further Drop

While the selloff has been faster than expected, a further drop in ETP holdings will probably mean more price declines, Goldman Sachs Group Inc. analysts including Jeffrey Currie wrote in a report dated May 14.

Northern Trust cut its SPDR stake by 57 percent to 6.9 million shares, according to a filing dated May 1. The asset-management company, as a custodian, holds assets without discretion over how they are invested, Doug Holt, the head of global corporate communications, said yesterday in an e-mail.

“We made one change to our global tactical asset allocation policy this month: eliminating our tactical position in gold,” Jim McDonald, chief investment strategist in Chicago at Northern Trust, which oversees about $810 billion, said in a report on March 13.

BlackRock, the world’s biggest money manager, trimmed its holdings by half to 4.1 million shares, a filing dated April 12 showed. On May 9, Robert Kapito, president of the New York-based company, said that he would still buy the metal.

Farallon, Whitebox

Farallon Capital Management LLC bought 600,000 shares of SPDR, while Omega Advisors Inc. purchased 90,000. Whitebox Advisors LLC reduced its holdings 90 percent to 3,741 shares.

Michael Vachon, a spokesman for Soros, did not respond to a voicemail. Armel Leslie, a spokesman for Paulson, didn’t have an immediate comment on the filing. Steve Bruce, a spokesman for San Fransisco-based Farallon, declined to comment.

Money managers who oversee more than $100 million in equities must file a Form 13F with the SEC 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.

Futures declined for a sixth day today, heading for the longest slump since December 2011 as the dollar’s rally eroded demand for the metal as an alternative investment. Holdings in the SPDR extended a drop to the lowest since March 2009.

Attraction Sinking

“The precautionary demand for gold is not there, and the attraction is sinking,” said Frances Hudson, who helps manage about $272.6 billion of assets as a strategist at Standard Life Investments in London. “The money that has gone out from ETFs has not come back, and it seems people are trading up and migrating to equities.”

Paulson & Co., based in New York with $18 billion in assets, sold 915,000 shares in Barrick Gold Corp. (ABX), the world’s biggest gold producer by sales, a stake that was valued $32 million at the end of last year, according to a regulatory filing yesterday.

The firm also sold shares in NovaGold Resources Inc., Iamgold Corp., Randgold Resources Ltd. and Agnico Eagle Mines Ltd.

Paulson maintained his stake in SPDR even after his Gold Fund had declines of about 47 percent this year, according to two people familiar with the matter this month.

Gold remains the best store of value in an uncertain economy, New York-based Elliott Management Corp. told clients, even as the $21.8 billion hedge-fund firm founded by Paul Singerlost money on its position this year.

Coin Demand

Prices have rebounded from a two-year low of $1,321.50 on April 16 as demand for bars, coins and jewelry surged in India and China.

Hedge funds cut bets on a gold rally by 52 percent this year to 49,260 futures and options, U.S. Commodity Futures Trading Commission data showed on May 7. Speculators held 67,374 so-called short contracts, 6.4 percent more than a week earlier, the figures showed. Investors pulled a record $21.1 billion from bullion funds this year through May 13, according to Cambridge, Massachusetts-based EPFR Global, which tracks money flows.

Warren Buffett, the third-richest person in the Bloomberg Billionaires Index, said last year in his annual letter to shareholders that investors should avoid gold.

“If it went to $800, I wouldn’t be a buyer,” Buffett, chairman and chief executive officer of Berkshire Hathaway Inc., told reporters in Omaha, Nebraska, on May 2. “It just sits there, and you hope somebody pays you more for it.”

To contact the reporters on this story: Debarati Roy in New York at droy5@bloomberg.net

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