Hedge fund manager John Paulson has sold about a third of his holdings in the SPDR Gold Trust exchange traded fund, which tracks the price of gold. The move, which was reported in Mr. Paulson’s regulatory filings for the third quarter on Monday, confirms what some had suspected: Faced with a dismal performance in the first half of 2011, Mr. Paulson has been making some big adjustments to his portfolio. But what does the move mean for gold?
Edel Tully, a strategist at UBS, noted that the exodus from the ETF was strongest during several days of trading in the latter half of August, a period that coincided with a correction in the price of gold. At the time, the gold’s slide was largely pegged to shifting expectations in how the Federal Reserve was going to respond to a slowing economic recovery.
Now, though, Mr. Paulson’s gold-fund downsizing gets some of the blame. Ms. Tully doesn’t actually mention Mr. Paulson by name, but noted that the sale does make some sense. Before its August selloff, gold was trading close to $1,900 (U.S.) an ounce, making it awfully tempting to bank some profits at record-high prices. She also believes that gold might have been a victim of its own success: Investors cashed out to cover losses elsewhere.
What’s more, redemptions in the gold fund – the biggest and most visible of its kind – don’t necessarily mean that investors are exiting gold positions. They could simply be shifting into other gold-related investments that are less transparent.
Indeed, a Wall Street Journal article suggested that Mr. Paulson had done just that: “The move doesn’t mean that Paulson is moving away from its bullish view on gold, a person familiar with the matter said. Rather, Paulson has found other more efficient ways to get the gold exposure through futures or other products that don’t necessarily show up in a filing, the person said.”
As for Ms. Tully, she remains upbeat, noting that investors have exited gold ETFs in the past without any lasting impact on the price of gold. In the third quarter, there were more buyers than sellers of the SPDR Gold Trust ETF, and holdings rose by 840,000 ounces.
On Tuesday, gold traded in New York at $1,778 an ounce, down just $2, following a 0.5 per cent retreat on Monday. Gold has risen 9.5 per cent since the end of the third quarter.