(May 18, 2011) -- Billionaire investor George Soros's $28 billion hedge fund has slashed its stake in a variety of gold investments.
In the face of a weakening in the US dollar in recent years, the billionaire investor and philanthropist had increased his stake in gold, silver and other precious metals. Yet, earlier this month, according to the Wall Street Journal, Soros's New York-based fund -- Soros Fund Management -- decreased its holdings of the gold-backed exchanged-traded fund SPDR Gold Trust by 4.7 million shares to 49,400 shares, valued at $6.9 million at March 31.
The news is discouraging to gold investors because Soros has been perceived as a leader in pursuing gold over the past two years, according to Mark Luschini, chief investment strategist at Janney Montgomery Scott, a regional broker-dealer. "Anytime someone of that prominence and success from an investment management standpoint makes such a change in allocation, many investors are likely to follow," he told aiCIO, adding that for a typical investor, gold is still a smart standalone investment when around 3-5% of a portfolio.
Reiterating the likelihood of herding behavior following Soros's decision, Matt Zeman, head of trading at Kingsview Financial, told the Wall Street Journal: "I assume he was sitting on a gigantic mountain of profit in that position and the prudent thing to do would've been to book some of it. Because he's leaving, you're going to see a lot of small speculators jumping ship."
Similarly to Soros, who famously called gold "the ultimate asset bubble," Dean Baker, co-director at the left-leaning Center for Economic and Policy Research in Washington told aiCIO last month: "Gold has had a huge run-up – which suggests a bubble." Baker has warned about institutional investors over-allocating to gold.
The previous metal, often viewed as a safe-haven during periods of crisis, is being increasingly scrutinized as an investment for pension and endowment funds. Following the recent purchase of nearly $1 billion in physical gold bullion by the University of Texas Investment Management Company (UTIMCO), Baker said: “I would not consider investing in gold. I assume they expect higher inflation, but I don't understand it. I think it's silly. In this case, I don't see why UTIMCO would do this."