Hedge fund manager and long-time gold bull John Paulson’s move to slash ETF bullion holdings by a third in the third quarter is certainly eye-catching, analysts said on Tuesday, but probably not a sign that he was abandoning his upbeat view of the metal.
Paulson & Co. cut its holding in the SPDR Gold Trust to 20.3 million shares from 31.5 million at the end of the second quarter, a U.S. regulatory filing showed late on Monday.
The sale is equivalent to about 1.1 million ounces of gold worth about $1.94-billion (U.S.) based on current prices, but analysts said Paulson may be only transferring into other forms of gold or meeting fund redemptions.
Paulson held on to his large bullion investments earlier in the year after billionaire financier George Soros liquidated almost his entire $800-million stake in gold in the first quarter. His holdings have been closely watched since then.
Soros had called gold “the ultimate bubble”, dumping it before the metal ran up to a record peak of $1,920.30 per ounce on Sept. 6 and then tumbled to a low of $1,534.49 on Sept. 26.
“The filing to the U.S. regulators will likely grab headlines and draw out the bullion bears, pointing to this as another sign that gold has had its day,” ANZ Research said in a note. “(But) we doubt Paulson’s gold fever has run its course.”
Spot gold slipped about 1 per cent to $1,761.10 per ounce by 1140 GMT, although it is still up about 25 per cent this year.
Gold functioned as a safe haven asset earlier in the year as investors bought the metal to guard against global uncertainty including the European debt crisis, but lost some of its lustre following the sharp losses in September and has since been moving largely in tandem with other risky assets.
Other SPDR holdings up Paulson’s motivation to sell some of his stake was unclear, but analysts said he might be transferring positions from SPDR to other holdings to better shield his positions or cut management fees charged by the SPDR.
“Redemptions from ETFs don’t always mean the outright liquidation of gold positions: in the past some investors have chosen to move to less-transparent ETFs or other types of gold exposure,” UBS analyst Edel Tully said in a note.
Paulson’s sales in the SPDR, by far the largest exchange-traded fund backed by gold, have been more than offset by purchases by other investors.
Overall holdings in the SPDR Trust have risen by nearly 3 per cent so far in the fourth quarter, following a 2 per cent rise in the third quarter.
Paulson’s gold liquidation could also be linked to fund redemptions, analysts said. Paulson’s Advantage Plus fund lost nearly half of its value by the end of September after sharp falls in some of its equity holdings such as Bank of America and Hewlett Packard.
Paulson, who uses the SPDR gold holdings to hedge currency risk for investors, said earlier this month redemption requests totalled about 8 per cent of the firm’s total assets, estimated around $30-billion.