UPDATE 2-Paulson holds onto gold ETF, Soros adds gold miners in quarter

Thu Aug 14, 2014 6:41pm EDT

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(Adds comment, more details from fund filings)

By Frank Tang

NEW YORK Aug 14 (Reuters) - Hedge fund Paulson & Co maintained its stake in the world's biggest gold-backed exchange-traded fund, SPDR Gold Trust, in the second quarter, while Soros Fund Management LLC sharply boosted his investment in gold mining stocks.

Legendary investor George Soros nearly doubled his ownership in a U.S. gold mining companies ETF and initiated new stakes in other gold producers, suggesting the big names in hedge funds continued to have confidence in the yellow metal.

Investors pay close attention to the quarterly filings by notable fund managers because they provide the best insight into whether the so-called smart money has changed its sentiment toward gold as a hedge against inflation and economic uncertainty.

New York-based Paulson & Co, led by longtime gold bull John Paulson, owned around 10.2 million shares in the ETF worth $1.31 billion on June 30, a filing with the U.S. Securities and Exchange Commission showed on Thursday.

That represents a gain of around $45.3 million as the price of gold climbed nearly 3.5 percent in the second quarter. In the first quarter, gold posted a gain of 6.5 percent as funds added gold back to their portfolios after aggressively selling the yellow metal last year.

"It shows that the premier players in investing still have faith in gold," said Bill O'Neill, partner at commodities investment firm LOGIC Advisors in New Jersey.

Some gold investors, however, are increasingly cautious as an improving U.S. outlook could prompt the Federal Reserve to raise interest rates soon.

Market watchers said gold's outlook remains bullish as long as real interest rates, calculated by deducting inflation rates from nominal interest rates, stay negative.

"Gold has become increasingly attractive to hedge fund managers who are long-term investors as real interest rates remain negative," said Axel Merk, chief investment officer of the $400 million Merk Funds, a family of currency mutual funds and the Merk Gold Trust, a gold ETF.

FUNDS BUY GOLD MINING STOCKS

Soros Fund Management increased his stake in Market Vectors Gold Miners ETF to 2.05 million shares valued at $54 million at the end of the second quarter, compared with 1.16 million shares in the first quarter.

"Gold mining stocks are considered relatively cheap. It also suggests that Soros may be thinking gold prices are near the bottom of the range," O'Neill said.

Soros also initiated new gold investments including 1.33 million shares in call options of the Gold Miners ETF valued at $35 million, and 1 million equity shares in Allied Nevada Gold Corp.

But Soros also slashed his stake in Barrick Gold Corp by more than 90 percent to less than half a million shares valued at just $8.8 million in the second quarter after boosting ownership of the gold miner in the first quarter. (Reporting by Frank Tang; Editing by Matthew Lewis, James Dalgleish and Lisa Shumaker)

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