NEW YORK Hedge fund Paulson & Co maintained its stake in SPDR Gold Trust, the world's biggest gold-backed exchange-traded fund, in the third quarter after slashing its stake by more than half in the second quarter when bullion prices plummeted.
However, some notable money managers and pension funds, including PIMCO, continued to cut their gold ETF holdings, sparking fears that the exodus in gold led by institutional investors in the first half of the year will continue as the economy improves.
New York-based Paulson & Co, led by longtime gold bull John Paulson, owned 10.2 million shares in the ETF worth $1.31 billion on September 30, unchanged from its holdings on June 30, a filing with the U.S. Securities and Exchange Commission showed on Thursday.
That represents a gain of $93 million as the price of gold rebounded in the third quarter.
"For hedge fund managers like Paulson, I think they are long-term investors," said Axel Merk, portfolio manager of California-based Merk Funds, which has about $450 million worth of assets under management.
"With Janet Yellen, we know that the Federal Reserve is likely to err on the side of inflation, so there is a good reason to continue holding onto it," said Merk, whose firm also owns a stake in SPDR Gold Trust.
Gold prices were little changed at $1,290 an ounce after the filings by Paulson. On Thursday, bullion rose after the nominee for Federal Reserve chairman, Janet Yellen, defended the U.S. central bank's bold steps to spur growth, suggesting the massive bond-buying stimulus will continue. <GOL/>
Investors pay close attention to the quarterly filings by Paulson and other notable hedge fund managers because they provide the best insight into whether the so-called "smart money" has lost faith in gold as a hedge against inflation and economic uncertainty.
Paulson, which shot to fame in 2007 with a prescient bet against subprime mortgages, sharply cut its stake to 10.2 million shares in Q2 from 21.8 million in Q1, marking the first time the firm cut its gold ETF stake since the fourth quarter of 2011.
SOROS SWITCHES POSITIONS, PIMCO CUTS
The price of gold gained 8 percent during the third quarter, its largest quarterly gain in a year, thanks to a sharp rebound rally following a record 23 percent drop in the second quarter.
The general sentiment among gold investors, however, remains cautious as hedge funds continue to pile into the U.S. equities market for a better return. The S&P 500 index .SPX has been up about 25 percent this year, while gold was down over 20 percent and set to snap a 12-year bull run.
"Hedge funds are in the wait-and-see mode looking for more data to emerge before making the decisions for their next move in gold," said Adam Sarhan, chief executive at New York-based Sarhan Capital.
SPDR Gold Trust held 906 tonnes of gold at the end of the third quarter, versus 968.3 tonnes in the second quarter. The pace of selling appeared to slow after a more than 250-tonne outflow in the first quarter.
Among large institutional investors, PIMCO has now cut its stake in SPDR Gold Trust for a fourth consecutive quarter to 1.2 million shares by Q3, down sharply from 6.3 million shares in the second quarter of 2012.
PIMCO's commodities portfolio manager said in October he was positive on gold's outlook and has been selling gold puts, a bullish strategy.
Meanwhile, Teacher Retirement System of Texas also trimmed its gold ETF stake to 479,600 shares in Q3 from 499,600 shares in Q2.
George Soros eliminated his stake in Goldcorp Inc (G.TO) and exited massive put options in Market Vectors Junior Gold Miners ETF (GDXJ.P). However, he also initiated a stake in the larger-cap Market Vectors Gold Miners ETF and kept its calls in Barrick Gold Corp (ABX.TO).
Boston-based Baupost Group, one of the industry's most-revered hedge funds run by Seth Klarman, dissolved its stakes in several large-cap Canadian gold mining companies after aggressively adding them in the second quarter, and he left his 21.7 million stake in NovaGold Resources Inc (NG.TO) intact.
Hedge fund managers who were bullish on gold a year ago, including Third Point's Daniel Loeb, Omega Advisors' Leon Cooperman and Eton Park's Eric Mindich, have all eliminated their stakes in gold ETFs and gold equities by the end of the third quarter.
Institutional investors' massive stakes in SPDR Gold Trust have tremendous influence in gold prices as redemptions of their massive ETF mean dumping the metal in the open market.