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Money Mar 13, 2013

Soros cuts gold investment by half. Is it time to dump bullion?

By Firstbiz Staff

Even as central banks are hoarding more gold than ever, investment gurus are turning bearish on the metal as the recent decline in the gold price and better-than-expected recovery in the US has led many to predict a turn in the gold cycle.

While gold hit a record high in 2011 due to uncertainty over US growth prospects and rising debt problems in Europe, investors today are seen cutting their holdings in gold exchange traded funds and equities as gold prices have declined 5 percent this year to trade below $1,600 since much of their fears have now subsided.


Is the bull run over? Reuters

Billionaire investor George Soros has made a major reduction in his gold position, cutting his stake in the biggest ETP by 55 percent in the last quarter, indicating a bearish sign for the bullion market.

Recently, gold has been pressured by concerns about waning demand as the global economy continues to struggle. The $8.5 billion Soros Fund Management now owns 600,000 shares of the gold ETF, worth an estimated $97 million. That's down from 1.3 million shares, worth more than $227 million, in the third quarter.

Tiger Management's Julian Robertson dissolved his entire stake in Market Vectors Gold Miners ETF, while he held onto the Junior Gold Miners ETF, according to this report.

Another investor John Paulson's gold fund is down 18 percent in the last month due to a slump in the metal.

Low interest rates and a cash-flush financial system tend to draw investors looking to preserve their wealth into gold and other hard assets. When there are signs of an improving economy, investors tend to sell their stakes in gold as it diminishes gold's appeal as a hedge against inflation.

A relenting of the crisis in the euro zone, debt ceiling aversion, and a 3.1 percent increase in US real GDP are strong factors of an improving economy. On 5 March 2013, the Dow Jones Industrial Average pierced through levels last seen in 2007 to close at levels of 14253.

"If the equities market continue to roll higher here, investors could divert more money away from gold in the near term," Goldman Sach's O'Neill told CNBC.

According to a Bloomberg report, the bull run for gold may finally be over as the US Fed reviews stimulus. "Investors sold 106.2 metric tons valued at $5.4 billion from exchange-traded products in February, the most since their creation in 2003. Another 26.1 tons was cut since then. Credit Suisse Group AG and Barclays Plc say the 12-year rally will peak in 2013," the report said.

Last month Goldman Sachs cut its 2013 gold price forecast from $1,810 to $1,600 an ounce as the metal's recent price drop and an increase in US real interest rates led to speculation the turn in the gold cycle has already started.

Clearly if big hedge funds are dumping the yellow metal, retail investors who have been piling into gold are bound to take note.

Two years ago, Soros termed gold as the "the ultimate asset bubble". He now perhaps sees the risk of it bursting.

by Firstbiz Staff

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