Eton Park, the hedge fund founded and ran by Goldman's youngest partner, Eric Mindich, has just joined Paulson and Soros in making GLD his largest common stock position at $800 million (in addition to owning calls and puts on GLD for another $1.1 billion in gross notional). The fund also owns puts for almost $900 million gross in the MSCI Emerging Markets index, but without having any detail on the strike and duration, this position could be equivalent to a net notional of anything (not to mention possible arbs with non-disclosable CDS and other OTC products). Either way, as Eton Park had no GLD common holdings at March 31, it is now clear where a substantial buying interest in the ETF came from in Q2.
Elsewhere, Soros posted an update on his own holdings, which dropped by over 40%, from $8.8 billion to $5.1 billion, signifying the Hungarian manager may be getting more bearish on the economy. Further confirming his departure from stocks, aside from his top GLD position at 5.2 million shares, Soros' other key top 10 positions were convertible bond positions in Linear (3.125% 2027), Lawson (2.5% 2012), Flextronics (1% 2010), RF Micro (0.75% 2012), Epicor (2.375% 2027), RF Micro (1% 2014), Diodes (2.25% 2026), Cadence (1.375% 2011), Blackboard (1.5% 2027), JDS (1% 2026), and Ceradyne (2035), in order of size.
The problem is that now that most funds have blown their easy money on accumulating GLD stakes, any incremental purchases in GLD will likely not be as easy on the margin. And with some of the biggest hedge funds in the world having made GLD their top position, and the likelihood that at least some of them have made wrong bets in their other holdings, a potential drop in the market, which could incite a flash round of margin calls, will likely see liquidations in GLD which is now liquidity of first resort for many of the top 10 worldwide hedge funds. This indeed foots with Goldman's recent upgrade on gold (PT of $1,300), which we took very skeptically. Our concern was subsequently validated by Robbin Griffiths in the following King World News interview:
Eric King: "I wanted to ask you about gold Robbin. I know you believe that this is a secular bull market in gold. At the same time Goldman Sachs put out a bullish report as reported by ZeroHedge and from a contrarian perspective they were looking at that as quite negative. I wanted to get your comments on that."
Robbin Griffiths: "Yeah I'm absolutely with them, that's a contra-indicator. I'm personally out of my gold at the moment. I do think that the ten year secular uptrend is still in place and it will eventually go to at least two and a half thousand, probably more than that. That's simply the old all-time high adjusted for inflation...And I just think it's one of the assets that people have profits on, so as the equities melt down, people realize they need cash, they will sell whatever they've got profits on and that will include gold."
We see gold going much higher in the long run. That's strategy. The tactics, however, may not be quite as simplistic as there are far too many variables suddenly involved to make a smooth prediction on how one gets from point A to point B. To quote Art Cashin: stay nimble.