Ray Dalio, John Paulson still betting on gold
As per the 13Fs filed for the first quarter, hedge funds still seem to have confidence in gold’s price outlook even as the interest rate scenario could be turning negative for the precious metal.
According to the latest 13F filings of hedge funds, at the end of the first quarter, New York–based Paulson & Co. had 4.32 million shares in the world’s largest gold-backed ETF, the SPDR Gold Shares ETF (GLD). This amount was a slight decline from its position of 4.36 million shares at the end of December 2017.
Ray Dalio, chair and chief investment officer of Bridgewater Associates, maintained the fund’s stake in GLD and the second-largest physical gold-backed ETF, the iShares Gold Trust ETF (IAU). The fund increased its stake in both these gold ETFs at the end of the fourth quarter of 2017 amid warnings of a recession. As per WhaleWisdom, the fund’s holdings in GLD rose 5.9% sequentially in the first quarter.
Why Dalio and Paulson like gold
John Paulson is a known goldbug who loves gold for several reasons. He has previously stated that gold should be considered a good bet as an inflation hedge if you have a long-term view.
Dalio’s Bridgewater Associates didn’t have any major positions in gold ETFs until the second quarter of 2017, when the fund made its first purchases worth $68.1 million in GLD and $36.8 million in IAU.
In the third quarter of 2017, Dalio went on a gold-buying spree. At the end of the third quarter, the fund’s fourth-largest position was in GLD at $473 million, a whopping increase of 595% sequentially. Dalio also suggested in August that investors buy gold because if things go badly, “gold would benefit more than other safe-haven assets such as the US dollar, the yen, and Treasuries.”
Dalio also recommends gold for diversification purposes and as an inflation hedge. He believes that because gold performs well when inflation is high or growth is declining, it tends to diversify the overall risk in one’s portfolio.
Gold’s movement versus other securities
In the first quarter of 2018, gold prices rose 1.6%. In comparison, the S&P 500 Index–tracking SPDR S&P 500 ETF (SPY) (SPX) fell 1.4%, while the SRDR Dow Jones Industrial Average ETF (DIA), which tracks the Dow Jones Industrial Average Index (DOW), fell 2.4%. Most of the gains for gold during the quarter resulted from weakness in the US dollar (UUP), which slid 2.1%. Gold prices rose during the quarter despite rising US interest rates (TLT). Rising interest rates are negative for non-income-yielding assets, including gold.
As per the data tracked by Bloomberg, the holdings in the gold-backed ETFs rose to their highest level since 2013 in the quarter. GLD saw net inflows of $396 million in the quarter.
In the next article, we’ll see how hedge fund managers have changed their positions in gold miners.
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