If you said back in 2001 that a major insurance company would buy hundreds of millions of dollars worth of gold bullion to "hedge against asset declines", you would have been laughed at. The idea was inconceivable.
Yet today, there was this news article.
(Bloomberg) -- Northwestern Mutual Life Insurance Co., the third-largest U.S. life insurer by 2008 sales, has bought gold for the first time the company’s 152-year history to hedge against further asset declines.
“Gold just seems to make sense; it’s a store of value,” Chief Executive Officer Edward Zore said in an interview following his comments at a conference hosted by Standard & Poor’s in Brooklyn. “In the Depression, gold did very, very well.”
Northwestern Mutual has accumulated about $400 million in gold, and Zore said the price could double or even rise fivefold if the economy continues to weaken. Gold gained 10 percent last month, the most since November. The commodity has more than tripled since 2000, rising for eight straight years.
“The downside risk is limited, but the upside is large,” Zore said. “We have stocks in our portfolio that lost 95 percent.” Gold “is not going down to $90.”
Has the world turned upside down? Isn't conservative insurance companies buying gold a sure sign of the apocalypse?
Maybe not. Major hedge funds have been buying gold in huge quantities lately.
On May 15th, a 13F Filing showed that hedge funds managed by John Paulson held almost 9% of all outstanding GLD (the gold bullion ETF) at the end of March, a position with a market value of around $3 billion. Paulson's funds also owned about 15% of GDX (the gold mining stock ETF), 11% of Anglogold (AU), 4% of Kinross (KGC), and 3% of Goldfields (GFI).
Around the same time we learn that David Einhorn of Greenlight Capital, another well-known hedge fund manager, has accumulated a substantial exposure to gold-related investments.
Gold isn't just for gold bugs anymore.