Gold Bug Hedge Funds Collectively Report Over $183mm In New Call Option Positions On Miners

While mainstream news sources continue the war against gold and gold-related investments, three of the world’s top performing hedge fund managers have been busy at work building speculative gold positions during the first quarter.

George Soros, John Paulson, and Steve Cohen, who in aggregate control over $60 billion dollars, have been aggressively buying the most speculative vehicles associated with gold: call options on gold mining stocks.

Starting out with, George Soros, billionaire financier and chairman of Soros Fund Manangement LLC, was the target of bearish gold commentary this week issued by Bloomberg. While Bloomberg journalists correctly reported that he’s been cutting his stake in gold, what they failed to mention (which was articulated here on May 16th), was how he reallocated the proceeds.

Soros indeed cut his stake in the GLD gold fund by about $2.5mm—a paltry sum, especially given the fact that he simultaneously purchased a massive $25mm in call options on the GDXJ Junior Gold Miners Index. This purchase outweighs the physical gold sale by a factor of 10—suggesting he expects much greater gains ahead to be had in the junior mining stocks.

Reported exclusively here on February 19th, was Steve Cohen, founder of SAC Capital Partners LP, purchased a $60mm option “straddle” position on the GLD during Q4 2012, which represented the expectation of an explosive move in gold—either up or down in price. Indeed, that is exactly what occurred, and during Q1, SAC Capital Partners closed out that $60mm straddle position (no doubt at a staggering profit), while at the same time buying $66mm in call options on a major gold & copper producer. The firm also maintained over $76mm in long positions on mining equities during Q1.

The largest of the trio in terms of gold positioning for the quarter, was John Paulson, founder of Paulson & Co., which reported owning over $4.389 billion in total gold holdings. Paulson held firm his $3.3 billion stake in GLD, and further added a shocking $96mm in call options on two major gold mining companies. (Editors note: Paulson & Co.’s call option position was incorrectly stated as $92mm, article updated on the 19th)

In sum, this group of gold bug fund managers reported total purchases of over $183 million dollars in new call option positions on gold mining equities during the first quarter, with over $25mm (see May 16th piece), dedicated to the GDXJ Junior Gold Miners index, as deployed by Soros Fund Management.
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Bottom Line: While gold and gold mining equities in particular have become the world’s most hated investment, three of the top hedge fund managers of our generation are not only holding firm their previous gold holdings—but they are quietly accumulating tens of millions of dollars in call options on gold mining stocks.

If the capital they’re sending into battle is any indication, it might suggest that these men are expecting breathtaking surges higher in mining shares, with Soros’ position speaking the loudest—as call options purchased on a junior mining index is akin to call options purchased on a leveraged equity ETF.
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To view the detailed Q1 2013 13-F statements reported by these funds, consult the following SEC links:

Q1 13-F – Soros Fund Management
Q1 13-F – SAC Capital Partners
Q1 13-F – Paulson & Co.

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Thanks,
Tekoa Da Silva
Bull Market Thinking