Which Giant Institutional Investor Has Joined the Gold Bug Club?
The ranks of investors betting on gold is growing. John Paulson raised his stake in SPDR Gold Trust (GLD) and bought more shares of NovaGold Resources (NG) last quarter. George Soros more than doubled his stake in SPDR Gold Shares. And thanks to the Wall Street Journal, we know it’s not just day traders and hedge fund kings loading up –- also the world’s biggest bond investor, PIMCO.
The Journal reports that PIMCO’s $21 billion Commodity Real Return Strategy Fund has also been buying gold, up to 11.5% of assets from 10.5% in June. The attraction: the managers expect inflation and expect that gold will benefit.
Gold bugs are full of reasons to buy, including the Euro zone crisis and indications that the Fed will do more to stimulate the economy. And they're encouraged by gold's most recent surge.
But let’s be clear: this is more betting than investing, and it’s based almost entirely on market psychology, not long-term fundamentals. Those show that there’s plenty of gold, and we don’t have a lot of use for all of it. The price of gold doesn't even make sense when compared to other stocks, like Apple (AAPL), as YCharts discussed here.
Also, even rich and famous investors make mistakes. Paulson made a bad bet on Bank of America (BAC). And just about a year ago, PIMCO's Bill Gross was enduring sleepless nights thanks to a big, bad bet on bonds. He’d sold all the U.S. government debt in the $244 billion Total Return fund and missed a big rally in Treasuries.