Billionaire financier George Soros, head of Soros Fund Management.
Hedge Funds
May 4, 2011, 6:49 p.m. EDT
Gold moves pit Soros against Paulson
Soros reportedly sells, while Paulson & Co. sees much higher prices
By Alistair Barr, MarketWatch
SAN FRANCISCO (MarketWatch) — Soros Fund Management, one of the biggest hedge-fund firms in the world, sold much of its gold and silver investments over the past month because there’s less chance of deflation, The Wall Street Journal reported Wednesday.
Nevertheless, gold could climb as high as $4,000 an ounce over the next three to five years, according to John Paulson, head of hedge-fund giant Paulson & Co., speaking to investors during a Tuesday meeting at New York Public Library, the Journal also said.
Paulson said he still has most of his personal wealth in gold-denominated funds run by Paulson & Co., the newspaper noted.
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These divergent opinions on gold may be partly driven by the different way Soros and Paulson hedge funds are managed.
Soros takes lots more positions and trades more rapidly than Paulson. Soros had more than 800 long U.S. equity positions at the end of 2010, while Paulson, disclosed roughly 100.
One hedge-fund manager who holds a big gold position said that Soros could, in theory, sell gold and silver to take profits and then build positions back up within days, or even hours.
Indeed, Soros said in September that gold was the “ultimate bubble,” even as his hedge-fund firm built big positions in the precious metal. A Soros spokesman declined to comment.
In contrast, Paulson sees gold as a hedge against currency devaluation, rather than something to trade, according to an investor who didn’t want to be identified. A spokesman for Paulson declined to comment.
Reuters
John Paulson, president of Paulson & Co.
Many hedge funds may be sticking with their gold investments because they’re worried about a medium- to long-term decline in the value of the U.S. dollar. Gold is often considered a hedge against possible currency depreciation. Read more about the new gold bugs.
Alan Fournier of Pennant Capital also has been selling gold, while John Burbank of Passport Capital has trimmed some of his investments in the precious metal to lock in profits, according to The Wall Street Journal.
Still, Burbank remains a long-term gold bull and expects to buy more gold-mining shares when they decline, the Journal reported.
“I don’t see diminishing interest,” said Osvaldo Canavosio, a hedge-fund analyst at Man Investments (LONDON:UK:EMG) in New York.
Gold prices have fallen in recent days and silver has slumped, after a ferocious rally in the past year and a half.
“For specific assets like silver, there could be adjustments in the size of positions,” Canavosio commented. “If daily moves grow larger, they take a smaller position. There could be perhaps a need to reduce position sizes in silver for this reason.”
Some hedge-fund managers change position sizes based on volatility, he noted.
Still has glitter
Gold, which hasn’t been as volatile, is still appealing to several different types of hedge fund, according to Canavosio.
Reuters
Billionaire financier George Soros, head of Soros Fund Management.
Managers who use computer models to latch on to trends will still be interested in trading gold, as long as this market remains liquid, he explained.
So-called discretionary global-macro hedge funds, which don’t rely on computer models, are still interested in gold, either as a form of “tail-risk” protection, or as a hedge against a falling U.S. dollar, Canavosio said. ”I don’t think these will change until there’s a change in prospects for the U.S. dollar from changes in fiscal and monetary policy here.”
Soros Fund Management, a $28 billion firm now run by Keith Anderson, bought gold to protect against deflation. It now believes there’s less risk of a sustained drop in consumer prices because the Federal Reserve is still pumping money into the financial system, the Journal reported, citing unidentified people familiar with Anderson’s thinking.
Soros Fund Management isn’t too worried about a surge in inflation because the Fed may signal at the end of 2011 that interest-rate increases are coming — possibly early in 2012, the newspaper said.
