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Hedge Funds Bullish on Gold Miners Despite Poor Returns to Date

Gold investment in 2011 has been one of the most profitable ventures seen this year – investment in gold miners, not so much. “Gold is up 12% this year but shares of gold miners have fallen almost 16%,” reports the Wall Street Journal. “Smaller gold miners are down almost 40%, based on the returns of leading exchange-traded funds tracking those stocks.”


Fund managers like billionaire George Soros took a hit. In Soros’ case, he sold out of his bullion in the first quarter and spent the year boosting his bets on gold miners. John Paulson’s Paulson & Co. has been hit especially hard. “Paulson & Co. was the largest holder of Johannesburg-based miner AngloGold Ashanti Ltd., with 9.6% of the company’s outstanding shares at the end of the third quarter,” writes the Wall Street Journal. “AngloGold is down about 14% so far this year. Mr. Paulson holds nearly 3.4% of shares outstanding of Gold Fields Ltd., which is down about 14% in 2011, and more than 8% of NovaGold. That helps explain why Mr. Paulson’s fund dedicated to gold investments is down nearly 6.6% in 2011, after losing more than 7% in December, through Dec. 13, according to investors.”

Not all hedge fund managers are bearish about gold miners though. Some look at gold mining stocks and see nothing but opportunity. Greenlight Capital’s David Einhorn announced in November that “there is a substantial disconnect [that] has developed between the price of gold and the mining companies.” Then, he promptly doubled his fund’s holdings in Market Vectors Gold Miners Index ETF, elevating the holding to Greenlight Capital’s third-largest position. “With gold at today’s price, the mining companies have the potential to generate double-digit free cash flow returns and offer attractive risk-adjusted returns even if gold does not advance further.” Einhorn explained, “Since we believe gold will continue to rise, we expect gold stocks to do even better.”

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