Why Are Billionaires Buying Up Gold? (GLD, GDX, GDXJ, ABX)

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November 21, 2012 4:55pm NYSE:GDX NYSE:GDXJ

Deborah Baratz: When billionaire investors are buying gold, it probably means prices for the yellow metal are headed higher.

Three well-known billionaire investors – George Soros, John Paulsen and Julian Robertson – have been adding heavily to their gold holdings this year.

Gold buying by some of the world’s most successful investors is a strong argument that gold prices, despite their impressive rise over the past several years, still have a long way to go.

The precious metal is expected to enjoy its 12th straight year of increases in 2013. So far this year, gold prices are up about 10%.

Forecasters see gold rising each quarter in 2013, ending at $1,925 an ounce in the last quarter, or 11% higher than current prices, according to Bloomberg.

While gold prices haven’t moved much lately, investors need to stay focused on the long term.

On Tuesday, December gold futures on the Comex fell $8.50 (0.5%) to $1,725.9 an ounce. This came after remarks by Fed Chairman Ben Bernanke that the looming fiscal cliff could threaten the U.S. economy.

Of course, such minor bumps haven’t kept the smart money – billionaire investors — from buying gold.

Why Billionaires Are Buying Gold

Take George Soros, chairman of Soros Fund Management, for example.

In the third quarter, a Nov. 14 SEC filing showed that Soros raised his position in SPDR Gold Trust (NYSEARCA:GLD), the largest exchange-traded gold fund, by 49% to 1.32 million shares, up from 884,000 shares in the previous quarter.

This is his greatest purchase in gold since 2010.

So why might Soros be buying gold now?

“We see gold as a hedge against the follies of politicians,” Michael Mullaney, chief investment officer at Fiduciary Trust in Boston said to Bloomberg. “It’s a good time to garner some protection in portfolios by having some real asset like gold.”

John Paulson, founder and present of Paulson & Co., has also been buying gold.

In the second quarter, he increased his position by 26%, according to Bloomberg. His holdings of 66 tons is greater than the official gold reserves of many nations, including Brazil, Bulgaria and Bolivia.

In the third quarter, through his Paulson & Co. hedge fund, Paulson increased his stake in the SPDR Gold Trust to 21.8 million shares, a $3.66 billion value and 30% of his portfolio. This makes him the largest shareholder in the fund, according to a Nov. 15 SEC filing.

Finally, retired hedge fund billionaire and legend Julian Robertson has been buying gold via his Tiger Management Fund.

In the third quarter, Tiger Management raised its Barrick Gold Corporation position, the world’s biggest gold company by production and reserves (NYSE:ABX), by 45%.

The fund is also riding the gold bulls through ETFs.

In the third quarter, Tiger Management significantly raised its stakes in two key gold ETFs: Market Vectors Junior Gold Miners (NYSEARCA:GDXJ) (up 50% from the second quarter); and Market Vectors Gold Miners (NYSEARCA:GDX) (an increase of 35%).

Other Bullish Signs for Gold Prices

Of course, billionaire investors buying gold isn’t the only indicator that the yellow metal still has a lot of upside.

The Fed shows no sign of letting up on the easy-money policies, such as the third round of quantitative easing (QE3) that have helped fuel gold’s meteoric rise.

Just last week the minutes of the Fed’s policy-setting FOMC hinted toward an early 2013 extension of “Operation Twist,” which had been set to expire at the end of the year.

And as most gold investors know, political uncertainty in the world also tends to drive gold prices higher.

“Rising tensions in the Middle East are gold-friendly,” HSBC analyst James Steel recently wrote in a research note. “Furthermore, a rise in crude oil prices from Mideast tensions plays a secondary level of support for bullion, as the two commodities are historically positively correlated.”

Written By Deborah Baratz From Money Morning

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