Wednesday, November 2, 2011

Einhorn Bets on Gold Mining Companies

Legendary hedge-fund manager David Einhorn has laid his cards on the table. He is betting that the gold mining companies will outperform gold bullion, reversing the trend from the last 6 months. It comforts me to know that Einhorn and I see eye to eye on this. 

Here is what he had to say during his recent conference call for his firm Greenlight Capital: 

“A substantial disconnect has developed between the price of gold and the mining companies. With gold at today’s price, the mining companies have the potential to generate double-digit free cash flow returns and offer attractive risk-adjusted returns even if gold does not advance further,” Einhorn said. “Since we believe gold will continue to rise, we expect gold stocks to do even better.” 

He also mentioned that in the third quarter he cut Greenlight
Capital's gold holdings and moved these funds into the
Market Vectors Gold Fund Miners ETF (GDX).

Are gold mining companies finally starting to narrow the gap
with gold bullion? Since the end of the 3rd quarter, gold
miners (GDX) are up close to 9% while gold bullion (GLD) is
up 7%.

It looks like Einhorn's timing could be spot on.