David Einhorn Bullish on Gold Mining

Joel Anderson  |

When David Einhorn, the manager of hedge fund Greenlight Capital (GLRE) speaks, people listen. Einhorn has repeatedly demonstrated an ability to foresee trends in the market that borders on downright preternatural. He made his reputation after predicting the collapse of Lehman Brothers in 2008, and he more recently appears to have won in his war over battleground stock Green Mountain Coffee Roasters (GMCR). He publicly declared his short position this October only to watch the stock plummet nearly 40 percent yesterday on an earnings statement that missed expectations. In a letter Tuesday, Einhorn announced that he has taken another long position: gold mining.

David Einhorn has long been bullish towards gold, but he's now expanding that view to include gold miners as well. In his 3Q letter to Greenlight Capital's investors he expresses his faith in the Market Vectors Gold Miners ETF (GDX), stating “During the quarter we exchanged a portion of our gold position for additional investment in the Market Vectors Gold Miners ETF. While the price of gold has advanced significantly, the shares of gold miners have not. It has reached the point where gold mining stocks should do well even in a stable gold market; we expect the price of gold to appreciate further, so gold miners should do even better." Einhorn has long been invested in the price of gold and continues to be, stating in the same letter "Even with the reduction, physical gold continues to be our largest portfolio holding.” However, the shift to an ETF like the Market Vectors Gold Miners ETF represents a broad faith in the industry as a whole.

An endorsement from Einhorn could clearly mean good things for major players in the sector. Along with Market Vectors Gold Miners ETF, large cap gold mining companies like Canada's Barrick Gold Corp. (ABX) and Goldcorp, Inc. (GG) could be poised to rise in value. Shares in Barrick have been showing consistent gains, now hovering just 5 percent below their 52-week high of $55.95 per share. Since a low of $43.19 per share on October 20th, shares have jumped up 23 percent in less than a month. Goldcorp, meanwhile, also continues to post solid gains, with a year-to-date increase in share value of 18.13 percent.

If Einhorn's speculation about gold prices proves accurate, it could mean great things for the gold mining industry as a whole. The price of gold is already up 28 percent in the last year. Trading at a floor price of $1,788 per ounce, the increased volatility of the markets and concerns about European debt have helped to prop up the gold prices.

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