Hedge fund manager John Paulson reduced his holdings in the world’s largest gold exchange traded funds by 36% in the third quarter, according to regulatory filings.
Paulson & Co. cut its holdings in the $72.4 billion SPDR Gold Shares (NYSEArca: GLD) to 20.3 million shares from 31.5 million at the end of the second quarter, Reuters reported Tuesday. Based on current prices, Paulson unloaded about 1.1 million ounces of gold valued at nearly $2 billion, according to the article.
“Paulson’s motivation to sell some of his stake was unclear, but analysts said he might be transferring positions from SPDR to other holdings to better shield his positions or cut management fees charged by the SPDR,” Reuters reported, adding the fund could also be selling gold to meet fund redemptions.
Paulson’s big stake in the gold ETF has helped offset losses in financial stocks this year. [Paulson’s Gold ETF Bet]
Some hedge funds use the gold ETF and others like iShares Gold Trust (NYSEArca: IAU) to get liquid exposure to the precious metal. George Soros’ hedge fund has scaled back its investments in gold ETFs this year, but reported added to his stake in SPDR Gold Shares in the third quarter. [Soros Again Trims Gold ETF Holdings; Paulson Lets It Ride]
Some ETFs hold physical bullion, while others invest in gold futures contracts. Investors should also note that gains on precious metal ETFs can be taxed at higher rates than stocks.
SPDR Gold Shares has an expense ratio of 0.4%, compared with 0.25% for iShares Gold Trust, which holds nearly $10 billion in assets.
Paulson’s $30 billion hedge fund remained the largest holder of SPDR Gold Shares at the end of September with a position worth $3.5 billion based on the current gold price of $1,779 an ounce, the Financial Times reported Tuesday. Paulson also uses the ETF to let his investors denominate their holdings in gold, rather than U.S. dollars, according to the story.
“A person familiar with the firm said that the sale may reflect the relative cost of different securities used to create the gold share class, rather than an overall reduction in … Paulson’s exposure to gold,” the FT reported.
“The shift does not mean Paulson is moving away from his bullish view on gold, a person familiar with the matter said. Paulson has found ways to get exposure to gold through futures or other products that don’t necessarily show up in regulatory filings, the person said,” according to a separate report from MarketWatch.
SPDR Gold Shares
Full disclosure: Tom Lydon’s clients own GLD.