Cross Currency Rates

Sterling is firmer today despite UK inflation accelerating again more than economist forecast in April with consumer prices rising 4.5%. Inflation remains a real threat to developed and emerging markets which will lead to continued buying of gold and silver.

Gold’s correction has been slow and gradual (unlike silver) and it is down 4.5% in US dollar terms so far in May. However in euro terms gold is flat on the month with gold consolidating in euro terms and looking like it may soon challenge the record high of €1,072/oz.

This is especially the case as the risk posed by Eurozone debt markets is not going away anytime soon and indeed contagion remains a real risk.

Euro Gold – 1 Year (Daily)

The confirmation of George Soros ETF gold sale has again garnered much media comment. Soros’ $28 billion fund decreased its holdings of the SPDR Gold Trust, the exchange traded fund.

Soros had bought gold to protect against possible deflation, though his fund now believes there is a reduced chance of such a condition, the Wall Street Journal recently said, “citing people close to the matter”.

Should Soros and his fund think that inflation is now a greater risk than deflation then it is curious that they would sell all their ETF holdings. It is also curious as Soros is on record regarding having serious concerns regarding the outlook for the euro and the dollar and the dollar as reserve currency of the world.

There is of course the precedent of other hedge fund managers , such as David Einhorn, who have also sold their gold ETF holdings but bought physical bullion in allocated accounts due to a concern about counter party and systemic risk.

It is quite possible that Soros’ fund has adopted a similar strategy.

This would allow Soros to discreetly accumulate bullion away from the public and media spotlight that result from SEC filings.

Paulson & Co., the $36 billion hedge fund founded by John Paulson kept its largest holding - $4.41 billion in the SPDR Gold Trust. Paulson’s belief in gold is seen in the fact that those who buy his fund can have their stakes denominated in gold rather than in dollars, meaning the value of their investment rises and falls with the price of bullion – lessening exposure to the dollar.

Paulson, unlike Soros, is on record as having purchased gold to protect against inflation.

PIMCO, the largest bond fund in the world, are also increasingly allocating funds to gold in their global equities portfolio. “The largest position in [our] fund is gold, which we think is a very good form of protection against what can go wrong,” said Anne Gudefin, PIMCO’s global equities portfolio manager,  told Fortune magazine May 12.

The Soros sale may lead to selling at the margin today by guru driven sellers reading simplistic articles.

However, Soros ETF sale is of far less importance than the much less reported upon and analysed investment demand, pension demand and central bank demand from Asia and internationally.

This demand is coming from a very low base and is sustainable. It is prudent diversification, store of value, safe haven buying and not the rampant speculation involving over allocation and leverage one would associate with a bubble.

NEWS
 (Bloomberg) -- Gold Halts Two-Day Drop as Growth Concerns Eclipse Soros Sales
 Gold gained, halting a two-day drop, as declines in Asian stocks and commodities helped ignite demand for safer assets even after billionaire investor George Soros sold most of his exchange-traded bullion holdings.

 Immediate-delivery gold rose 0.4 percent to $1,495.22 an ounce at 11:54 a.m. in Mumbai. Silver futures were little changed at $34.085 an ounce, while cash silver advanced 2 percent to $34.2750, rebounding from a 5.1 percent decline yesterday.

     Asian stocks fell for a fourth day on concern that the global economic recovery is slowing. Data today may show U.S. housing starts hovered in April around the lows reached during the recession, while growth in industrial production slowed.

Soros Fund Management LLC held 49,400 shares of SPDR Gold Trust as of March 31, compared with 4.721 million at end-December, according to the U.S. Securities and Exchange Commission. It also sold all 5 million shares in iShares Gold Trust.

     “Soros was sitting on a huge profit and like a lot of investors of late, he was happy to take those profits off the table,” said Gavin Wendt, founding director at MineLife Pty in Sydney. “That shouldn’t surprise people. Gold has been rising for a decade for fundamental reasons, which haven’t gone away.”

     Accelerating inflation, Europe’s debt crisis, a weakening dollar and fighting in Libya boosted the spot price of the metal to an all-time high of $1,577.57 an ounce on May 2. The metal increased 5 percent this year after a 30 percent rally in 2010, keeping it on course for an 11th straight annual advance.

Portugal Bailout

European finance ministers endorsed a 78 billion-euro ($111 billion) bailout for Portugal, while stepping up pressure on Greece to sell assets and deepen spending cuts in exchange for an increase in its rescue. India’s inflation index accelerated 8.66 percent in April from a year ago, topping an 8.5 percent rise forecast in a Bloomberg Survey, data showed yesterday.

     The dollar gained as much as 0.4 percent against six major currencies following a drop of 0.2 percent yesterday. The index weakened 4.3 percent this year.

     The decade-long surge in gold attracted investors seeking better returns than equities or bonds and an alternative to currencies, helping boost holdings in exchange-traded products backed by bullion to a record in December. ETP holdings have slipped 3.6 percent from the peak.

     Touradji Capital, founded by billionaire Paul Touradji, sold all of its shares in the SPDR Gold Trust during the first quarter, according to a filing to the U.S. Securities and Exchange Commission. The fund held 173,000 shares at the end of the fourth quarter, the filing showed on May 13.

‘Another Run Higher’

 “To the extent that Soros is respected by investors, I guess it implies that it will sew doubt in their minds and might see some investors leave the space,” David Thurtell, Singapore-based head of metals research with Citigroup Inc. Still, “we think gold can have another run higher.”

     Paulson & Co., the U.S. hedge fund run by John Paulson, maintained 31.55 million shares in the SPDR Gold Trust, according to a government filing.

     Eric Mindich’s Eton Park Capital Management LP reduced its stake in the SPDR Gold Trust by 48 percent during the first quarter, according to a government filing. Eton Park sold 2.165 million shares, cutting its holdings to 2.328 million as of March 31, the filing shows.

     Palladium demand outpaced supply by the most in a decade last year and the shortage will continue in 2011 on higher usage by carmakers and falling shipments from Russian stockpiles, Johnson Matthey Plc said. Immediate-delivery palladium increased 1.1 percent to $721.75 an ounce, while platinum rose 1.1 percent to $1,777.25 an ounce.

(Bloomberg) -- Paulson Takes $1 Billion Hewlett-Packard Stake, Adds to Gold Bet
Paulson & Co., the $36 billion hedge fund founded by John Paulson, took a stake in Hewlett-Packard Co. and increased its holding of Transocean Ltd., adding companies undergoing transformations to its bets on gold.

     Paulson bought 25 million shares in Hewlett-Packard, valued at about $1 billion, according to a regulatory filing yesterday. The New York-based fund added 17.3 million shares of Transocean, lifting its stake to 7.7 percent and making Paulson the largest holder of the Vernier, Switzerland-based offshore driller.

     The hedge fund has said it expects to make money in the next two years with the stocks of companies going through bankruptcy, restructuring or reorganization. Transocean, the owner and operator of the Deepwater Horizon drilling rig that exploded a year ago, was sued by BP Plc last month for billions of dollars in damages related to the oil spill. Hewlett-Packard is pushing deeper into software to try to reverse a 16 percent drop in its shares over the past year.

     Armel Leslie, a spokesman for Paulson, declined to comment on the stock purchases. Leo Apotheker, who took over as Hewlett-Packard’s chief executive officer Nov. 1, outlined his strategy for the first time on March 14. The company is starting a cloud-computing service that will let developers create applications for consumers and businesses that run on HP servers, Apotheker said at the time.

     Apotheker told top executives earlier this month that he’s bracing for “another tough quarter” in the Palo Alto, California-based company’s fiscal third quarter and urged deputies to “watch every penny and minimize all hiring.” HP said in February that sales for its second quarter, which ended in April, would miss analysts’ sales and profit estimates.

Betting on Takeovers

Hewlett-Packard declined 61 cents, or 1.5 percent, to $39.80 yesterday, and fell as much as 5.1 percent in extended trading. Transocean has dropped 26 percent since the April 20, 2010, explosion of the Deepwater Horizon in the Gulf of Mexico. It rose 7 cents to $68.49 in New York yesterday.

     Paulson’s largest fund, Advantage Plus, which bets on corporate events such as takeovers and bankruptcies, lost 1.7 percent this year through April with its dollar-denominated shares.

     Transocean, the world’s largest offshore driller, this month reported its biggest first-quarter profit decline in nine years amid a worldwide surfeit of rigs used to find oil and natural gas. New U.S. drilling rules enacted after last year’s disaster increased costs and forced the company to spend more time carrying out shipyard work during the quarter, Transocean has said.

Gold Stakes

Paulson also bought 6 million shares in Lubrizol Corp., the engine-additives maker that Warren Buffett’s Berkshire Hathaway Inc. agreed in March to buy for about $9 billion. Wickliffe, Ohio-based Lubrizol said this month its plan to sell itself is unaffected by disclosures of David Sokol’s investments in the firm as he pushed for Buffett, his then-boss at Berkshire Hathaway, to buy the firm. Paulson’s stake in Lubrizol was valued at about $804 million.

     Paulson kept his $4.41 billion holding of shares in the SPDR Gold Trust unchanged and added to stakes in mining companies including Johannesburg-based AngloGold Ashanti Ltd.

His fund bought 97,540 American depositary receipts in South Africa’s biggest gold producer last quarter, as well as 2 million ADRs in Gold Fields Ltd., its second-largest producer.

     Paulson has been betting on a global economic recovery, and has purchased gold to protect against inflation. Paulson’s investors can choose to have their stakes denominated in gold rather than dollars, meaning the value of their investment rises and falls with the price of the bullion.

Soros Sells

George Soros, the billionaire founder of Soros Fund Management LLC, sold most of his holdings in the bullion-backed SPDR Gold Trust and iShares Gold Trust funds in the first quarter, while buying shares of mining companies Goldcorp Inc. and Freeport-McMoRan Copper & Gold Inc.

     Soros’s fund held 49,400 shares of SPDR Gold Trust as of March 31, compared with 4.721 million at the end of the fourth quarter. The New York-based fund sold all 5 million shares it held in iShares Gold Trust. Soros bought 301,300 shares of Freeport-McMoRan and 7,600 of Goldcorp.

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-- Posted Tuesday, 17 May 2011 | Digg This Article