In the fourth quarter of 2016, Soros Fund Management got out of gold, while Paulson & Co. reduced its stake in the SPDR Gold Shares (NYSE:GLD). What does it mean for the gold market?
According to regulatory filings publisher earlier this month, Soros sold out his remaining shares in Barrick Gold (NYSE:ABX), the largest gold mining company in the world. The move followed getting out of shares of the SPDR Gold Trust in the previous quarter. Meanwhile, John Paulson reduced his stake in than investment fund from 4.8 million to 4.4 million shares in the fourth quarter of 2016.
These moves may indicate that market fundamentals are believed to be bearish for the yellow metal. You see, when important gold bulls are selling their holdings in the shiny metal, it may mean something. It seems that Soros and Paulson are embracing the Trump Trade, betting on softened regulations, tax cuts, higher interest rates, and a stronger U.S. dollar.
However, the regulatory filings show the investment positions at the end of 2016. But a lot changed in 2017 – February is almost gone and the Trump rally is waning. Investors worry about the new president’s rhetoric that a strong dollar is bad for the U.S. This is why gold has performed well so far this year. Now, markets focus on today’s Trump address to the Joint Session of Congress, which could be an important event for the gold market.
The take-home message is that Soros and Paulson reduced their exposure to gold in the fourth quarter of 2016. It may be an important bearish signal, but it does not have to be one. Hedge funds often change minds – for example, another financial guru, Stanley Druckenmiller exited his entire gold position during the election night, but came back in December and January due to cautious comments from the central banks and uncertainty over Trump. Hence, as we wrote in the previous edition of the GNM, investors should never buy or sell gold blindly just because someone else did it. Instead, they should always do their own research, considering both technical and fundamental factors.
Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.