As most of my readers know, gold and silver have been under serious pressure of late (see this detailed piece). Despite the SPDR Gold Trust (GLD) and iShares Silver Trust (SLV) losing about 10% in the last few weeks and the miners losing over 20%, one hedge fund made a $240 million bet on the action. The fund in question is SAC Capital Partners, a $20 billion dollar group of hedge funds founded by Stephen A. Cohen. It is important to note these bets were made before the close of the 4th quarter so some of the thesis has already played out, but there is plenty to take away from their filings.
The first thing they did was make a volatility bet on the movement of GLD and SLV by placing straddle option bets on both ETFs. With the recent move to the downside for gold and silver prices, this bet seems to have paid off. The funds' straddle options totaled about $20 million dollars on the SLV, while the bet on the GLD's movements was 300% higher at about $60 million. The details of these trades are here.
The larger story is the fund's bets on the mining sector. In the 4th quarter it increased holdings in precious metal mining shares by more than 120% from $55 million to $122 million. Holdings were increased Goldcorp (GG) and Barrick Gold (ABX). The company also increased its holdings of what I consider the best of breed gold miner Yamana Gold (AUY) by over $6 million. But the highlight of the bullish bet on the miners made by the hedge fund was the purchase of over $35 million dollars in call options on a number of gold and silver mining companies. This suggests SAC Capital believes that there will be a significant move to the upside in the precious metal miners sometime over the next few months or so. Thousands of call options were purchased on ABX, Anglogold Ashanti (AU), Freeport McMoran (FCX), and Newmont Mining (NEM), The specific details of all of these trades can be found here.
Thus, while many high profile managers have trimmed positions in their gold and silver holdings, and the miners have been a black swan among investors of late, SAC Capital is making massive bets on the short-term moves on these stocks to the upside. While this does not guarantee the stocks will move higher, a major fund putting such bullish plays into effect is a signal that it believes these stocks will appreciate. Since I have been highlighting these stocks for the last few months, it is reassuring to know that a major fund is betting hundreds of millions on appreciation in the miners.