Even the gods of Wall Street make mistakes every now and then. For years now billionaire John Paulson, who made his fortune during the subprime crisis, has been the single largest stakeholder of the biggest gold-linked ETF through his firm Paulson & Co.
Paulson has taken a lot of heat from the financial media for largely sticking with gold during the corrective period that started after the metals price peaked in 2011. But recent regulatory filings show that in the fourth quarter of 2015, Paulson unloaded 37% of his holdings (or $400 million worth) in the GLD, marking the third time in about 2 years the fund manager has sold off some of these shares. His total holdings dropped from 9.2 million shares in third-quarter 2015 to 5.8 million by Dec. 31. However, he still owns at least a half-billion dollars worth of the ETF.
In other words, Paulson sold at precisely the wrong time, just before golds 2016 rally started in earnest, gaining about 19% and topping $1,260 at its peak last week.
Paulson’s longtime stake has paid off: Paulson likely wasn’t alone last year, Barrons conceded.The consensus, including Barrons, predicted a dismal run for the precious metal in 2016. The tide turned quickly, however. A flurry of global economic concerns, mixed with huge price swings in stocks, bonds, currencies and commodities, all combined to revive golds place as a haven.
But Paulson’s gold bet has already paid off: Barrons went on to note that Paulson has booked hefty profits a couple of times before by selling at advantageous junctures in 2011 and 2013.
Paulson himself admitted in 2013 that predicting golds short-term movements is difficult. The rationale for owning gold has not gone away, he told CNBC. The consequences of printing money over time will be inflation. Its just difficult to predict when. Its very difficult to predict price movements in the short term, but if you’re looking for a hedge against potential inflation in the future and have a longer-term view, I continue to believe its an important part of anyone’s portfolio.
Paulson sale a bullish sign? In some ways, Paulson’s sale of part of his gold could be viewed as a contrarian bullish indicator, because some analysts say the yellow metal needs to see serious capitulation, or throwing in the towel, from some of its strongest-handed investors before the bull market can resume in earnest.
Contrarian analysts argue that a bottom in prices won’t be in place until there is a lot more pessimism and despair among gold-market participants, MarketWatch contributor Mark Hulbert has written. Gold, in other words, is still looking for a strong and enduring wall of worry.
We wont know until the next regulatory filing whether Paulson reinvested in gold in the first quarter, but bullion’s standout performance so far already has forced a flurry of metals analysts to upwardly revise their price forecasts.
Dutch bank changes tune on gold: In a prime example of capitulation in the reverse direction, one of the most high-profile gold bears has now publicly reversed her 2016 target. Bloomberg is now reporting that Georgette Boele of ABN AMRO Group NV has changed her tune on gold.
Boele changed her year-end forecast to $1,300 an ounce from $900, it noted. That implies a 7.7% advance from today’s level, instead of a 25% decline. The bank also sees silver rising another 8% to finish at $16.50 at the end of the year.
Her reasoning? A much-gloomier outlook for the world economy, especially in the U.S., emerging markets, and oil-driven economies.
Having been long-standing bears, we have now turned bullish on precious metal prices, Boele wrote. Our new scenario sees a longer period of weaker global growth. She therefore sees the Fed standing pat on interest rates this year.
There you have it: High-profile capitulation from both the bullish and the bearish camps in gold. With the momentum behind gold as long as it stays near $1,200, the most prudent course of action remains keeping a diversified portfolio that includes gold. A time-proven method of investing in bullion has been to dollar-cost-average ones purchases by buying metal on a regular basis to ride out the inevitable price fluctuations.