Paulson holds onto bullish bets in gold ETF in Q3, others cut

Reuters

* Soros cuts Gold Corp holdings, adds ETF stake in goldminers

* PIMCO trims SPDR Gold Trust for 4 straight quarters

* Some notable funds eliminate gold stake in trend reversal

By Frank Tang

NEW YORK, Nov 14 (Reuters) - Hedge fund Paulson & Comaintained its stake in SPDR Gold Trust, the world'sbiggest gold-backed exchange-traded fund, in the third quarterafter slashing its stake by more than half in the second quarterwhen 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 institutionalinvestors in the first half of the year will continue as theeconomy improves.

New York-based Paulson & Co, led by longtime gold bull JohnPaulson, owned 10.2 million shares in the ETF worth $1.31billion on Sept. 30, unchanged from its holdings on June 30, afiling with the U.S. Securities and Exchange Commission showedon Thursday.

That represents a gain of $93 million as the price of goldrebounded in the third quarter.

"For hedge fund managers like Paulson, I think they arelong-term investors," said Axel Merk, portfolio manager ofCalifornia-based Merk Funds, which has about $450 million worthof assets under management.

"With Janet Yellen, we know that the Federal Reserve islikely to err on the side of inflation, so there is a goodreason to continue holding onto it," said Merk, whose firm alsoowns a stake in SPDR Gold Trust.

Gold prices were little changed at $1,290 an ounceafter the filings by Paulson. On Thursday, bullion rose afterthe nominee for Federal Reserve chairman, Janet Yellen, defendedthe U.S. central bank's bold steps to spur growth, suggestingthe massive bond-buying stimulus will continue.

Investors pay close attention to the quarterly filings byPaulson and other notable hedge fund managers because theyprovide the best insight into whether the so-called "smartmoney" has lost faith in gold as a hedge against inflation andeconomic uncertainty.

Paulson, which shot to fame in 2007 with a prescient betagainst subprime mortgages, sharply cut its stake to 10.2million shares in Q2 from 21.8 million in Q1, marking the firsttime the firm cut its gold ETF stake since the fourth quarter of2011.

SOROS SWITCHES POSITIONS, PIMCO CUTS

The price of gold gained 8 percent during the thirdquarter, its largest quarterly gain in a year, thanks to a sharprebound rally following a record 23 percent drop in the secondquarter.

The general sentiment among gold investors, however, remainscautious as hedge funds continue to pile into the U.S. equitiesmarket for a better return. The S&P 500 index has been upabout 25 percent this year, while gold was down over 20 percentand set to snap a 12-year bull run.

"Hedge funds are in the wait-and-see mode looking for moredata to emerge before making the decisions for their next movein gold," said Adam Sarhan, chief executive at New York-basedSarhan Capital.

SPDR Gold Trust held 906 tonnes of gold at the end of thethird quarter, versus 968.3 tonnes in the second quarter. Thepace of selling appeared to slow after a more than 250-tonneoutflow in the first quarter.

Among large institutional investors, PIMCO has now cut itsstake in SPDR Gold Trust for a fourth consecutive quarter to 1.2million shares by Q3, down sharply from 6.3 million shares inthe second quarter of 2012.

PIMCO's commodities portfolio manager said in October he waspositive on gold's outlook and has been selling gold puts, abullish strategy.

Meanwhile, Teacher Retirement System of Texas also trimmedits gold ETF stake to 479,600 shares in Q3 from 499,600 sharesin Q2.

George Soros eliminated his stake in Goldcorp Inc andexited massive put options in Market Vectors Junior Gold MinersETF. However, he also initiated a stake in thelarger-cap Market Vectors Gold Miners ETF and kept itscalls in Barrick Gold Corp.

Boston-based Baupost Group, one of the industry'smost-revered hedge funds run by Seth Klarman, dissolved itsstakes in several large-cap Canadian gold mining companies afteraggressively adding them in the second quarter, and he left his21.7 million stake in NovaGold Resources Inc intact.

Hedge fund managers who were bullish on gold a year ago,including Third Point's Daniel Loeb, Omega Advisors' LeonCooperman and Eton Park's Eric Mindich, have all eliminatedtheir stakes in gold ETFs and gold equities by the end of thethird quarter.

Institutional investors' massive stakes in SPDR Gold Trusthave tremendous influence in gold prices as redemptions of theirmassive ETF mean dumping the metal in the open market.

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