The tumbling gold prices in recent years have made the shiny metal look down and out. However, not everyone shares the bearish view. In fact, billionaire investor Stan Druckenmiller just bought millions of shares of a gold exchange traded fund (ETF).
If you are not familiar with Stan Druckenmiller, know this: he used to be the chief strategist for George Soros and it was his idea to short the British pound in 1992, which famously “broke the Bank of England.” The legendary shorting made Soros’s Quantum fund $1.0 billion.
Moreover, Druckenmiller has a tremendous track record when it comes to investing. His own hedge fund, Duquesne Capital Management, averaged an annual return of 30% from 1986 to 2010.
So what’s he doing this time? Buying a gold ETF.
According to his family office’s most recent SEC filing, Druckenmiller just bought 2.9 million shares of SPDR Gold Shares (NYSE Arca:GLD). The newly taken position in the gold ETF was worth approximately $323.6 million, which made up more than 20% of Druckenmiller’s portfolio. (Source: The Securities and Exchange Commission, last accessed August 20, 2015.)
Low Interest Rate Policy to End “Very Badly”
It is a bold move to put more than one-fifth of his holding into a shiny metal ETF. But Druckenmiller’s bullish view on gold shouldn’t come as a surprise, as he has criticized the Fed’s low interest rate policy and said that it could end “very badly.”
“I know it’s so tempting to go ahead and make investments and it looks good for today, but when this thing ends, because we’ve had speculation, we’ve had money building up four to six years in terms of a risk pattern, I think it could end very badly.” (Source: CNBC, last accessed August 20, 2015.)
Since 2008, the U.S. Federal Reserve has increased money supply by 67%, or more than $5.0 trillion. The massive quantitative easing program has pushed up asset prices. The stock market and the bond market are surging to all-time highs. Meanwhile, growth in the real economy was much more moderate, and it’s hard to know whether the growth was real or a just a result of the artificially low interest rates.
Druckenmiller was worried about things such as the large number of unprofitable companies pursuing IPOs and the high levels of corporate debt. In April he said “You have to be on alert to that ending badly […] I don’t quite know how we get out of this, but it’s possible.”
His latest move to SPDR Gold Trust could be a sign of turning to “risk off” mode, a potential way to survive the bad ending Druckenmiller was referring to.
Note that he was not just loading up on the gold ETF. His SEC filing shows that he also bought 1.3 million shares of Newmont Mining Corporation (NYSE:NEM), worth around $29.9 million. Moreover, he bought 3.5 million shares of copper company Freeport-McMoRan Inc. (NYSE:FCX), with a value of around $66.0 million.
With more than one fifth of his portfolio invested in the yellow metal, Druckenmiller is making a big bet. His previous big bet on the British pound turned out to be tremendously lucrative. Will he be right this time too? Only time will tell.