Gold prices haven’t really recovered from the dramatic plunge in the past several years. And you don’t often see world-famous investors betting big on gold mining companies. But that’s what’s happening right now: George Soros just revealed his $264-million stake in Barrick Gold Corp. (NYSE:ABX) stock.
In a filing to the Securities and Exchange Commission (SEC), Soros Fund Management LLC disclosed that it owned 19.4 million shares of Barrick Gold stock as of the end of the first quarter. Soros’ share in Barrick Gold had a value of approximately $264 million at the time. (Source: “Form 13F Information Table,” U.S. Securities and Exchange Commission, May 16, 2016.)
George Soros Bullish on Gold Bullion
Why is Soros bullish on Barrick? Well, if gold prices are going up, then gold mining companies should also do well. As the largest gold mining company in the world, Barrick Gold stock might be able to recoup some of the previous years’ losses if the gold price keeps recovering.
Is Soros bullish on gold bullion? Most definitely. The billionaire investor likes the yellow metal. In fact, Barrick is not the only investment he made in precious metals.
In the first quarter, Soros’ family office also bought call option contracts on 1.05 million shares in SPDR Gold Trust (ETF) (NYSEARCA:GLD), the world’s biggest exchange-traded fund (ETF) that tracks the price of gold bullion. By the end of March, the value of Soros’ call options totaled approximately $123.5 million.
By now, you have probably figured out where this is going. If someone is betting big on the price of the shiny metal, this usually means one thing—they are no longer optimistic about stocks.
As it turns out, that’s exactly the reason behind Soros’ investment in gold. The billionaire investor is now bearish on U.S. stocks.
The SEC filing showed that as of March 31, Soros Fund Management owned put option contracts on 2.1 million shares of the SPDR S&P 500 ETF Trust (NYSEARCA:SPY). This ETF aims to track the performance of the S&P 500 index. Effectively, Soros is betting against the U.S. stock market.
And by the way, that was no small bet… Soros’ put option contracts on the SPDR S&P 500 ETF have a face value of $431 million.
In addition, Soros also decreased his exposure to the U.S. stock market. As of the end of March, the value of his fund’s publicly disclosed holdings had dropped 37% to $3.5 billion.
Part of the reason why Soros is so bearish on U.S. stocks is China. In recent years, China’s economic growth has slowed. While its 6.9% growth rate last year should still be commendable, Soros believes that the situation could get much worse.
In an interview with Bloomberg at this year’s World Economic Forum in Davos, Soros said that for China, “A hard landing is practically unavoidable.” He also commented, “I’m not expecting it, I’m observing it.” (Source: “Soros Says China Hard Landing Will Deepen the Rout in Stocks,” Bloomberg, January 21, 2016.)
Note that a lot of U.S. multinational companies have businesses in China. If China’s economy experiences a “hard landing” as described by Soros, those U.S. companies will be affected. Moreover, as we have seen several times last summer, a stock market crash in China is capable of sending waves of uncertainty across the globe.
Gold: The Only Hope?
That’s why Soros is betting big on gold bullion, hoarding Barrick Gold stock while betting against the U.S. stock market. Don’t forget, being known as “The Man Who Broke the Bank of England,” Soros has a pretty solid track record. (Back in the early nineties, he made a cool $1.0-billion profit by shorting the British pound.)
In times of slow growth and uncertainty, one unique class of assets has the potential to outperform all the others—and that’s gold. For centuries, gold has done a tremendous job helping investors preserve their wealth. This could be just another one of its shiny moments.