Gold, silver fall as a big investor backs out

Prices suffer on news that George Soros has dumped gold.

By TheStreet Staff May 17, 2011 11:11AM

Gold © Comstock Images/Jupiterimagesthe streetBy Alix Steel, TheStreet


Updated at 4:21 p.m. ET


Gold and silver prices fell Tuesday as the market weighed the first-quarter moves of big-name investors.


Gold (-GC) for June delivery dropped $10.60 to settle at $1,480 at the Comex division of the New York Mercantile Exchange. It traded as high as $1,497.50 and as low as $1,471.10. The spot gold price was falling $6.40, according to Kitco's gold index.


Silver (-SI) prices fell 64 cents to $33.49 an ounce. The U.S. dollar index reversed directions late in the day and was losing 0.3% to $75.40.


Both silver and gold face a rough ride as investors digest the latest 13F filings for the first quarter, which don't look good for gold.


George Soros dumped his gold holdings in the first quarter, but he did put some money on two large cap miners: Barrick Gold (ABX) and Goldcorp (GG).


Soros' closely watched fund raised its position in Barrick to 8,500 shares and initiated a new position in Goldcorp of 7,600 shares. Soros reduced his holdings in the SPDR Gold Shares (GLD) to 49,400 and cut his big share of NovaGold (NG) to 3.5 million shares from 12.91 million. Soros' bet on the small gold miner was a big boost for shares in 2010. Shares have fallen 35.8% in 2011.

Soros did initiate a new position in Freeport McMoRan Copper & Gold (FCX) of 301,300 shares and added to his position of Great Basin Gold (GBG), bringing his stake to 6 million shares.


John Paulson, who made his name betting against the mortgage market before it imploded, kept his 31-million-share stake of GLD and added 97,540 shares of AngloGold Ashanti (AU). Paulson sold some of his stake in Kinross Gold (KGC), but kept his stake in NovaGold the same.


Paulson added 2 million shares of Gold Fields (GFI), 205,000 of Rangold Resources (GOLD) and added to his Barrick position with another 500,000 shares.


Although the headlines all zeroed in on Soros selling shares in GLD and Eton Park selling 2.2 million shares, some investment banks bought shares. JPMorgan Chase (JPM) picked up 2.4 million shares.


In the cheaper but smaller gold ETF iShares Gold Trust (IAU), Soros closed out his position and Franklin Resources dumped more than 16 million shares, but a large portion of the selling was offset by Blackrock Advisors, which initiated a new position of 14.4 million and is incidentally the trust's sponsor.

Silver, on the other hand, was not subject to the same kind of selling. The iShares Silver Trust (SLV) saw huge bets by Bank of America (BAC) and JPMorgan, which increased their shares by a combined 10.56 million, making them the biggest and third-biggest investors in the SLV, respectively. One of the biggest sellers was Citigroup (C), with 1.5 million shares.


The filings are from January 2011 through March, and it will be interesting to see if the heavy selling silver saw in April and May was in part due to those companies' dumping those silver positions. The ETF has shed 656 tons since April 1st.


The biggest fear among some analysts has been that the hot money in ETFs that helped gold and silver rally to record highs would also lead to their downfalls. Some experts predicted that gold should be at $800-$1,000 once the speculative money came out.


The first quarter proved that a lot of the speculative money did come out, and gold prices are still holding around $1,500, which prompts the question: Is gold resilient? Or is there another sell-off to come?


Gold and silver were suffering more of a sell-off Tuesday as the euro struggled after Greece hinted it would be open to some kind of debt restructuring and European finance ministers approved a $110 billion financial package for Portugal.


U.K. inflation for April also wasn't helping the metals, as it came in hotter than expected at 4.5%. The higher reading sparked more aggressive calls for a rate hike, which the Bank of England has been fighting against, given the country’s anemic growth. The IMF estimates that the U.K.'s economy will grow 1.7% in 2011 and rates are currently at 0.5%.


"Seasonally strong physical demand and pockets of investment bargain hunting will continue to provide support to gold and also silver in the coming sessions," says James Moore, a research analyst at FastMarkets. "However, the recent ETF redemptions and exit of large-scale investors . . . could provide overhead resistance."


Phil Streible, a senior market strategist at Lind-Waldock, says he likes gold right now and thinks gold's trend is up. "It looks very solid."


On any big weakness, Streible has been looking to buy silver. "That didn't work so well a few weeks ago, but I think that that correction is done with." Streible says it's time to get interested when he sees silver down $1-$1.50 in a day.


Gold mining stocks, a risky but sometimes more profitable way to invest in gold, finished mostly higher Tuesday. Barrick Gold rose 0.2% to $45.24, while Newmont Mining (NEM) added 1.1% to close at at $53.53. Goldcorp finished up 0.6% at $48.71 and Rangold Resources rallied 1.8% at $76.73.


The Dow Jones Industrial Average ($INDU) finished the day down by 69 points, or 0.6%, at 12,479. The S&P 500 ($INX) closed half a point lower at 1,328 and the Nasdaq ($COMPX) rose 1 point to 2,783.


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May 17, 2011 7:00PM
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