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Hedge Funds Leaning Towards Gold

Gold has emerged as a major target for hedge funds in the third quarter maintained and many managers prefer to use exchange traded funds.

Hedge funds in the third quarter maintained – or even increased – their bets on gold, one of this year’s best trades. And many of the managers prefer to use exchange traded funds.

For example, Paulson & Co.’s John Paulson kept his $31.5 million share position in SPDR Gold Shares, now worth more than $4.1 billion, easily making him the ETF’s number one holder. The fund, which is also Paulson’s largest holding, seeks to replicate the performance of the price of gold bullion.

According to regulatory filings, his second largest holding at the end of the third quarter was Anglogold Ashanti, which explores and produces gold. Paulson is also the company’s largest investor even though he trimmed his holding by more than 6 percent in the three-month period.

Paulson’s ninth largest holding was mining company Kinross Gold, of which he is the fourth largest holder.

George Soros also counted SPDR Gold Shares as his largest holding, even after trimming his position by more than 10 percent. (Eton Park also trimmed its otherwise large holding in the ETF).

His fifth largest holding was Novagold Resources, a Vancouver-based company that explores gold, silver, copper, zinc, and lead ores in Alaska and British Columbia.

His largest new position in the third quarter was iShares Comex GoldTrust, which tracks the price of gold.

A number of hedge fund managers established new positions in SPDR Gold Shares. By far the two largest new investors were Highside Capital, founded by Lee Hobson, who at one time worked for Lee Ainslie’s Maverick Capital, a Tiger cub, and Shumway Capital, founded by Chris Shumway. Other fresh buyers of the ETF in the third quarter included Ionic Capital Management, run by former Highbridge Capital Management executives, Highbridge, and Third Point.

Louis Bacon’s Moore Capital was by far the largest new investor in Anglogold Ashanti, picking up five million shares in the third quarter. Three other hedge funds were among the five largest new purchasers of the stock in the September period—Jim Simons’s Renaissance Technologies, former GLG Partners manager Phil Jabre of Jabre Capital Partners, and GLG Partners, which recently merger with MAN Group.

Market Vectors Gold Miners ETF has also attracted many hedge funds. As of the end of the third quarter, the second largest holder was John Griffin’s Blue Ridge Capital, which increased its stake in the quarter by 6.4 percent, while the fourth largest holder was David Einhorn’s Greenlight Capital. Others took initial positions in the quarter, including Ionic.

Sticking with gold has been a good strategy. The price of the metal as well as the value of ETFs such as SPDR Gold Shares are up about 20 percent this year alone.

Many experts think the price will continue to climb, even if the metal’s bull market pauses over the next few months.

The World Gold Council on Wednesday said that gold consumption for 2010 will be higher than 2009 as a result of increasing levels of demand in India and China, sustained global demand for gold investment, along with growth in jewelry and industrial demand.

In the third quarter alone, total gold demand rose 12 percent from the third quarter of 2009. In US dollar terms, demand grew 43 percent over the same period. In addition, demand for gold jewelry increased by 8 percent from the third quarter of 2009 while retail investment rose 25 percent from the third quarter of last year.

“Healthy gold-demand growth in the third quarter occurred in the context of record international prices, demonstrating how consumers, particularly in India and China, are continuing to appreciate the enduring value of gold,” said Marcus Grubb, Managing Director, Investment at the WGC, in a press release. “The rediscovery of gold’s properties as both a currency and a monetary asset have been brought into sharp focus. Quantitative easing has forced the adjustment of global imbalances into currency markets and the resulting currency conflict is positive for gold. In addition, we believe demand will be facilitated by the growing number of channels that serve to make gold more easily accessible to a greater number of investors.”

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