Chidem Kurdas
The institutional manager Grantham Mayo Van Otterloo has a distinctive view on gold. Unlike most observers and gold buyers like John Paulson, GMO analysts do not think holding the metal is primarily a bet that the Federal Reserve’s easy money policies will create inflation.
Instead, they see gold as a function of emerging market growth and “financial repression” in India and China, meaning capital controls that obstruct the flow of assets to outside markets.
Analysts Amit Bhartia and Matt Seto pointed out that aggregate demand for gold from 2000 to 2010 was largely due to retail customers in emerging markets, who accounted for 79% of the purchases. By contrast, gold exchange-traded funds accounted for only 7.5% of the total, even as the media and regulators focused on commodity ETFs. China and India alone bought 9,000 tons of gold—four times the ETF demand.
Their conclusion: gold may go down as emerging economies slow, especially if there is a hard landing. Also, if India and China loosen capital controls, savings that now go into gold will move elsewhere.
Another part of the story is that gold producers are cheaper than the metal itself and are trading at low valuations. So GMO, being a value shop, albeit a big one with diverse strategies, bought the producers—Anglogold Ashanti, Gold Fields Ltd., and Iamgold, which are also Mr. Paulson’s choices, as well as Kinross Gold and Goldcorp Inc.
GMO’s $97 billion in assets are largely in equities but there is a growing natural resource portfolio and $9 billion in absolute return strategies that would be a large hedge fund if it were a separate entity.
Tags: Amit Bhartia, Goldcorp Inc., Grantham Mayo Van Otterloo, John Paulson, Kinross Gold, Matt Seto
HedgeFundSmarts 
March 22, 2012 at 5:58 pm
[…] By contrast, hedge funds have pared down their positions in gold futures. But some fund managers hold gold ETFs and producer stocks. […]