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Gold Producers Getting Battered Again As Gold Futures Hit Five-Year Low

Gold stocks like AngloGold Ashanti Limited (ADR) (NYSE:AU), Barrick Gold Corporation (USA) (NYSE:ABX), and Gold Fields Limited (ADR) (NYSE:GFI), among others, are getting battered for a second straight trading session today as the price of gold continues to sink owing to numerous factors. Shares of AngloGold are down by 8.68% today and by 14.07% over the past two trading days, while Barrick Gold is down by 11.95% today and by 16.14% over the past two sessions. Gold Fields has fared reasonably better, losing 5.84% today and 6.45% since the start of trading on Friday morning.


Gold for its part has hit five-year lows, dropping to as low as $1,087.50 in trading last night following an apparent dumping of gold on the market by China, after the country reported holding 53.32 million troy ounces of the precious metal on Friday, which was far lower than anticipated. August gold is now trading at $1,107.50, down by $24.20, and at its lowest levels since April of 2010.

The China factor is only one of the elements dragging down the price of gold. Another prominent factor is the strengthening U.S dollar, which typically battles head-to-head with gold as the de facto currency or commodity safe haven. Strong economic data coming out of the U.S of late has bolstered the belief that an interest rate rise is finally forthcoming and sent the currency soaring. Against the Canadian dollar, the U.S dollar has soared to six-year highs, trading at a worth of CAD1.30, and analysts believe it could continue to as high as CAD1.35 in the near future.

Hedge funds for their part had mixed sentiment towards the above-mentioned gold producers heading into the previous quarter, as they couldn’t seem to nail down a consensus on the near-term performance of the commodity (or at least the company’s dealing in it). Barrick Gold Corporation (USA) (NYSE:ABX) was a popular choice among billionaires we track, with eight of them having positions in the company as of March 31. However, overall, fund ownership dipped to 41 from 45 among the entirety of the funds we track, though the value of their collective holdings increased to $1.41 billion from $1.09 billion, during a quarter in which Barrick Gold Corporation (USA) (NYSE:ABX)‘s shares gained less than 2% in value, so the company had some major believers among the smart money. David Greenspan’s Slate Path Capital was one of the most bullish, with a position of 16.65 million shares worth $182.48 million and accounting for 11.5% of its public equity portfolio. The fund increased its position in the company by 320% in the first quarter.

It is well-known that hedge funds have under-performed the S&P 500 based on net returns over the past several years. But we are missing something very important here. Hedge funds generally pull in strong returns from their top small-cap stocks and invest a lot of their resources into analyzing these stocks. They simply don’t take large enough positions in them relative to their portfolios to generate strong overall returns because their large-cap picks underperform the market. We share the top 15 small-cap stocks favored by the best hedge fund managers every quarter and this strategy has managed to outperform the S&P 500 every year since it was launched in August 2012, returning over 139% and beating the market by more than 80 percentage points (read the details). Because of this, we know that collective hedge fund sentiment is extremely telling and valuable.

Smart money trading in AngloGold Ashanti Limited (ADR) (NYSE:AU) was mostly flat during the first quarter, with 21 funds holding positions valued at $635.16 million on March 31 compared to 21 funds holding $599.32 million in shares three months earlier. With shares rising by about 7.35% during the first quarter, the increase in capital did not offset the stock price gain, meaning there was a slight selling of shares collectively. Cliff Asness’ AQR Capital Management was one such fund that lost its appetite for AngloGold Ashanti Limited (ADR) (NYSE:AU) in the first quarter, selling off 82% of its position to leave it with just 60,805 shares worth $568,000.

Lastly is Gold Fields Limited (ADR) (NYSE:GFI), which also maintained the same number of investors with long positions, at 16, throughout the first quarter, though it saw their total investments plummet to $309.00 million from $394.10 million. While shares did decline by over 11% during the quarter, invested capital fell by over 21%, suggesting a big dip in enthusiasm for the stock. John Paulson’s Paulson & Co. was a big seller, closing its position that previously contained 3.95 million shares worth $17.88 million.

Of the three gold stocks, smart money was slightly bullish on one, neutral on the other, and slightly bearish on the third. Clearly, not even the smart money foresaw the big decline in gold and gold stocks, and there are a lot of disappointed investors holding them in their portfolios today.

Disclosure: None

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