On Aug. 15, regulatory filings with the U.S. Securities and Exchange Commission showed that during the second quarter of 2016, the Soros Fund Management LLC sharply cut its shares in gold, when the price of gold rose by almost 7% in the London Bullion market.
Soros’s fund slashed its stake in SPDR Gold Trust (ETF) (ARCA:GLD) by 25%, to 240,000 shares worth $30.4 million, from 1.05 million shares worth $123.5 million in the first quarter of 2016 and almost liquidating his position in Barrick Gold Corporation (ABX, Financial) to 1.07 million shares worth $22.9 million, from 19.4 million shares in the first quarter of 2016.
The fund scooped up a $263.7 million stake in Barrick Gold Corporation during the first quarter of 2016.
Barrick Gold Corporation (USA) gained 191% YTD and 189% in H1 2016, outperforming the S&P 500 by more than 186%.
May the recent Soros Fund’s movements be a sign that the price of gold and gold stocks will start to downtrend any time soon? It is possible, or it could mean exactly the opposite.
According to Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York, the exposure’s reduction towards gold miners may not suggest that investors are bearish on gold and gold stocks.
"Investors have been more proactive cutting holdings in the miners, some of whom have drastically outperformed the underlying in the first half of the year. [...] It may not suggest that they are necessarily bearish gold, but rather taking opportune profit," Wong said.
It also may suggest that the price of gold will continue up trending, if not rallying, in the coming weeks, on the ground of this reasoning.
As George Soros (Trades, Portfolio) has become more bearish on equity markets, nearly doubling his short bet against the S&P 500 (according to his regulatory filing, Soros increased options on shares in an exchange traded fund that tracks the S&P 500 from 2.1 million shares as of March 31, to 4 million shares), prices on the stock market may significantly plunge.
A decline in the S&P 500, the main index used to measure big-stock performance in the U.S., may force the Federal Reserve to not increase interest rates for the rest of 2016, or even lower them, if the findings of this research published by UBS are correct.
UBS argues that the most significant driver of interest rate change with the Fed is changes in equity prices.
Lower interest rates are also seen by many traders.
The postponement in interest hikes or even cuts by the Fed will exercise more pressure on the price of gold and mid-tier gold mining companies, which are characterized by high operating cost leverage, will benefit from a substantial increase in the price of gold and so will their shareholders.
Disclosure: I have no positions either in any stock or in indexes mentioned in this article.
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