Soros and Paulson Load Up On Gold

Posted by Mike Tirone - Wednesday, June 6th, 2012

Last fall we saw nothing be excitement for gold as the price continued to soar to hit its all-time record of $1,923.70 in September. Those days seemed to be long gone for the precious metal. Gold has now been stagnantly sitting in the longest slump in a decade as investors pushed it aside for the dollar and bonds.

This gold flat line comes just seven months after Bank of America Corp. said Europe's debt crisis would send prices to a record $2,000 an ounce.

Through May, gold fell 10% in a four-month slide, but now the big banks are saying that prices will rebound this year (or next) as the Federal Reserve shores up the world's biggest economy by easing monetary policy and devaluing the dollar.

As gold bugs try to defy the bear-market threat of gold with the Feds plans for the future easing, billionaire George Soros is buying heavily. The founder of Soros Fund Management LLC bought more gold in the first quarter while hedge-fun manager John Paulson kept hold of his biggest stake in the SPDR Gold Trust, which is the largest exchange-traded product backed by bullion.

According to Bloomberg, many gold investors are hesitant to give up on the yellow metal, even after failed elections in Greece drove the euro to a two-year low against the dollar. While that was happening, gold dropped as much as 21% in December, during the time Bank of America, Goldman Sachs Group Inc. Morgan Stanley, and Barclays Plc were encouraging investors to buy during that month.

Yet despite the lack of upward movement with gold lately, investors are still wetting their appetite for that $2,000 target that was practically assured by the biggest banks. John Stephenson helps manage $2.7 billion at First Asset Investment Management Inc. in Toronto predicted in November that prices would reach $2,500 in the next several months.

The failed predictions continued. Bank of America projected we hit $2,000 by early 2012, Goldman said gold would hit $1,840 by early June, while Barclays and Morgan Stanley said in January that gold would average $1,850 and $1,810 this quarter. The metal actually averaged much less than that since the end of March, at $1,619.

“The $2,000 target has moved further away, but it still holds,” Stephenson says. “We will see some easing, and that will push gold higher, but the reality is that we are on hold until the outcome of the Greece elections.”

As for Soros, his fund management firm more than tripled its investment in the SPDR Gold Trust in the first quarter to 319,550 shares now valued at $50.2 million. The range at which the Soros Fund Management has held shares in the SPDR is astronomical. It has held as few as 42,800 shares last year and as many as 6.2 million at the end of 2009.

On May 16, gold fell 19% from its closing high of $1,891.90 in August, within one percentage point of the common definition of a bear market. The price then hit a five-month low of $1,523.90 on December 29. According to Bloomberg, after rallying 3.7% on June 1, the metal is now up 4.5% since the start of January to $1,637.80 today, extending an 11-year bull market.

The Standard & Poor’s GSCI Spot Index (MXWD) of 24 commodities retreated 7.6 percent this year, and the MSCI All-Country World Index of equities declined 0.8 percent. The U.S. Dollar Index, a measure against six currencies, advanced 2.9 percent. Treasuries returned 2.2 percent, a Bank of America index shows.

Hedge funds and other speculators reduced their net-long positions, or bets on higher prices, by 70 percent since August, Commodity Futures Trading Commission data show. They held 77,325 U.S. futures and options in the week ended May 29, almost the fewest since December 2008.

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