Based on its most recent 13-F filing (reported 12/31/2011), Soros Fund Management (SFM) has reduced its position in GLD by 50%, from 1,320,400 shares to 600,000 shares in the past quarter. In addition, SFM also reduced its positions in many other gold equities including GDX, NovaGold (NG), iShares Gold Trust (IAU), Kinross Gold (KGC) and Hecla Mining (HL). With headlines such as "Billionaire investor George Soros is increasingly bearish on gold," the press has declared this is a very bearish sign for the gold market.
So is the gold bull market (and thus GLD) done?
When an investor like George Soros, who is known for his expertise in the currency markets, goes bearish on an asset, I like to pay attention and reassess the reason why I'm investing in that particular asset.
In this case, I believe that this is one of those negative signs (another is the massive Managed Money short position in the latest COTS report) that is a contrarian indicator that point to a short-term bottom in the gold market.
The first reason is related to the timing of these filed 13-Fs. 13-Fs declare holdings at the end of the previous quarter, which not only mean that they are quite dated, it also means that the action has already taken place. The GLD shares have already been sold and the price has dropped accordingly - so is this really the time to sell?
The second reason why investors should not read too much into this filing is probably the most convincing - this is NOT the first time Soros Fund Management has made a major reduction in its GLD position, only to watch the price of gold rise significantly from when it sold its position.
In 2011, almost the exact same headlines emerged when SFM filed its 13-Fs for the end of the first quarter.
When comparing the two filings, you can see that the reduction that SFM made in Q1 of 2011 was much greater in terms of both the amount of shares and the position's percentage decline. In fact, the 2011 filing was much more bearish since SFM only held a miniscule 49,000 shares at the end of the quarter, while SFM held 10 times more at the end of 2012. What's even more interesting is that after the 13-F filings in 2011, SFM ended up BUYING back over a million shares of GLD between then and the Q4 2012 filing - which shows that SFM can change its positioning quite frequently on a quarter-to-quarter basis.
So what did the gold price do following SFM's 2011 Q1 position reduction?
At the end of Q1 2011, the gold price was a little over $1400/oz, after spending the quarter languishing in a $1300-$1400 range. As those who have been following gold know, it then broke out the following quarter and ended up hitting its nominal high in Q3 2011 of $1900 / oz. So a mere 6 months later gold was up 30%, which could not have pleased fund managers at SFM.
Media headlines declaring the end of the gold bull market may be a little premature. The 13-F filings by Soros Fund Management (and other major investors) that show reduced gold positions are hardly a way to predict a gold top - especially since they have done the same thing in the past only to buy back in at higher prices.
This is another signal to GLD holders, that a short-term bottom may be in place and as many funds have sold their stakes, many of the sellers have exited the market. Additionally, an investor has to remember that when a major fund sells its stake, it puts that money to work elsewhere. It is quite possible that many of these players have moved their money from GLD to general equities (which have had quite a run) and the time may be nearing when they want to book their stock market gains and move their money back into GLD.
Major funds reducing their stakes in an equity is the kind of news that screams market bottom, as it did in Q1 2011. If you are using 13-F filings to try and predict market direction then you are way behind the curve - playing in last quarter's market is always a losing proposition.
Disclosure: I am long HL.