If the actions of some of the hedge fund industry’s leading managers is any indication, the attractiveness of gold as an asset class is on the rise. Several recent disclosures support such a conclusion. First, a recent survey performed by London-based researcher, Moonraker, found that 20 out of 22 hedge funds had added exposure to gold bullion to their portfolios.
In addition, well known managers John Paulson of Paulson & Company, Inc. and David Einhorn of Greenlight Capital have upped their stakes in gold this past year. Paulson, who will soon start a hedge fund aimed specifically at gold investments, has swallowed up shares in mining groups AngloGold Ashanti and Gabriel Resources. AngloGold currently represents his fourth-largest holding at $108 million, while SPDR Gold Trust represents his largest holding, at $2.87 billion. Likewise, Einhorn has reportedly resorted to purchasing and physically storing a sizeable position in gold, citing the cost effectiveness stemming from reduced fee exposure.
What, if anything, can investors glean from such information? For starters, it is safe to assume that money managers are using gold investments as a hedge against the fluctuating value of the dollar. Recent actions by the Federal Reserve to inject liquidity into the monetary system, as well as the funding of massive bailout and stimulus projects supported by the Obama Administration will likely place future downward pressure on the value of the US Dollar. However, predicting the timing of such a drop in value is difficult, and depends upon a wide range of economic variables. If one thing is for certain, the aggressive moves of Paulson and Einhorn suggest that the time to move into gold is right now.
Second, by claiming such massive stakes in gold, hedge fund managers may be steering clear of traditional equities. As Market Folly reports, Einhorn claims “almost no net long exposure to equities.” Such a position does not represent a vote of confidence for the broader stock market indices, and his comment may even hint that equities are currently overbought. Moving into such a liquid investment as gold may hint a belief that we are in for a bout of market volatility in the near future. Equities investors, particularly those with shorter time constraints, may want to take heed.
If the actions of some of the world’s leading investors is any indication, it may be worthwhile to reexamine your portfolio’s exposure to gold. Given the enormity of our current fiscal, monetary, and economic concerns, such a position could add a safe and effective hedging option to your investment mix.