UPDATE 1-Paulson sticks with bullish bets in gold ETF in Q4, others cut

Fri Feb 14, 2014 6:54pm EST

By Frank Tang

NEW YORK Feb 14 (Reuters) - Hedge fund Paulson & Co maintained its stake in the world's biggest gold-backed exchange-traded fund, SPDR Gold Trust, in the fourth quarter, even as others exited when bullion prices posted their biggest annual loss in 32 years.

Well-known manager George Soros bought shares in Barrick Gold Corp, one of the world's top gold mining producers, while other institutional investors, including PIMCO, continued to cut their exposure to gold investments.

News that notable hedge funds held onto their gold holdings is expected to boost confidence among bullion investors, which has been shaken as the Federal Reserve began to trim its monetary stimulus amid a better economic outlook.

"The fact that hedge fund managers continue to hold gold bode well for investor sentiment towards the metal, especially since we've had such a strong start to the year," said Jeffrey Sica, chief investment officer of New Jersey-based Sica Wealth Management, which has over $1 billion in client assets.

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.

Since the beginning of the year, gold has gained nearly 9 percent, thanks to an equities retreat after last year's record run on doubts over the U.S. economic recovery and as emerging-market turmoil cast a shadow on global growth. In 2013, gold was down 28 percent.

"I am glad that Paulson is recognizing gold's fundamentals and (is) not influenced by these price movements," said Axel Merk, portfolio manager of California-based Merk Funds, which has more than $400 million in currency mutual fund assets.

SOROS ADDS BARRICK SHARES, PIMCO CUTS AGAIN

New York-based Paulson & Co, led by longtime gold bull John Paulson, owned 10.2 million shares in the ETF worth $1.19 billion on December 31, unchanged from its holdings on September 30, a filing with the U.S. Securities and Exchange Commission showed on Friday.

That represents a loss of $123 million as the price of gold tumbled in the fourth quarter.

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 Fund Management, run by billionaire financier George Soros, added 6.3 million shares of Barrick Gold worth $111 million to its holdings. The firm also boosted its stake in the Canadian miner's call options.

Boston-based Baupost Group, one of the industry's most revered hedge funds run by Seth Klarman, sticked with its 21.7 million stake in NovaGold Resources Inc, valued at $55 million.

Among large institutional investors, PIMCO has now cut its stake in SPDR Gold Trust for a fifth consecutive quarter to just 0.8 million shares by Q4, down sharply from 6.3 million shares in the second quarter of 2012.

SPDR Gold Trust held about 800 tonnes of gold at the end of the fourth quarter, a 12 percent decline from the 906 tonnes in the third quarter. The pace of selling appeared to slow after a nearly 400-tonne outflow, or 30 percent drop, in the first half of the year.

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.