Funds Seek Midas Touch with Miners


"'It's going to $2,000 or I have to shave my hair off' [Charles Oliver/Sprott]"

Last year, investors like John Paulson and Richard Chilton piled into shares of the ETF SPDR Gold Trust (GLD.P), which is directly backed by the metal.

This year, many managers have added shares of gold producers, as well as the Market Vectors Gold Miners ETF (GDX.P), which owns stakes in several dozen publicly traded companies.

Among 30 of the largest equity-oriented hedge funds tracked by Reuters, including those run by Paulson and Chilton, 12 reported owning substantial plays on gold in regulatory filings that covered portfolios as of March 31.

Continued faith in the gold price is reflected by mining stock additions to "Smart Money" 30 portfolios. Gold hit an all-time high two weeks ago at $1,248.95/oz. and is currently trading at around $1,215.

"In the next two years it's going to $2,000 or I have to shave my hair off," said Charles Oliver of Sprott Asset Management, referring to a pledge he made publicly. He co-manages a $600M PM fund.

"Gold bullion is defense," he says. "On the offensive side, if you want capital gains, (you want) gold stocks. We're in a bull market in gold and. . .most of the time gold stocks will outperform bullion."

While gold stocks have actually lagged the metal's performance during much of the past decade, which many attribute to rampant mining cost inflation from 20052008, the relationship appears to have reversed this year.

Since late-March, gold mining stocks have risen more than 16%, vs. 9% for the metal. Believing the trend will continue, fund managers have increased their gold stocks exposure.

Paulson announced plans late last year to make a big bet on gold by launching a new fund devoted to the metal. At the end of the first quarter, Paulson held 31.5 million shares of the popular SPDR Gold Trust.

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