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FOCUS: Paulson GLD Sale Won't Impact Gold Prices

By Neils Christensen of Kitco News
Thursday August 15, 2013 1:35 PM

(Kitco News) - Commodity analysts are not expecting to see major moves in gold-backed exchange-traded funds despite the news that prominent hedge fund Paulson & Co. halved its stake in SPDR Gold Trust (NYSE: GLD).

On Wednesday, a filing with the Securities and Exchange Commission showed that major gold bug John Paulson reduced his stake in GLD to 10.2 million shares in June, compared to 21.8 million shares he owned as of March 31.

A filing also showed that Paulson sold his shares in Barrick Gold Corp, the world’s biggest gold-mining company.

“This is confirmation that there is a good reason why the price of gold has dropped as low as it has,” said Mathieu D’Anjou, senior economist at Desjardins Economic Studies.

D’Anjou added that Paulson’s selloff could explain why gold prices were weak in June and hit a low of $1,179.40 an ounce, which he said appeared to be a strong capitulation move.

Although the report is from June, Colin Cieszynski, senior market analyst from CMC Markets, said the report could be bullish for gold as it might be a final wave of selling.

“It shows that the major sellers are probably now well out of the market, which could be a sign of capitulation,” he said.

Looking forward, D’Anjou said he is not expecting to see more investors flee the ETF market, which could help prices hold support at $1,300. D’Anjou added that although he can’t rule out a drop back down to $1,200, he doesn’t think this is a likely scenario.

“I don’t think [investor] demand will go back up,” he said. “But I’m not really negative on gold for the next few months.” 

Jessica Fung, commodity analyst at BMO Capital Markets, agreed that the report won’t have much impact on prices moving forward, despite the fact that many people have been waiting to see what Paulson was going to do with his gold positions.

“It’s sort of backward looking,” she said. 

While Paulson’s big move might encourage some contrarians to buy gold, Fung said investors are probably too nervous to do anything. She said most investors will probably sit on their hands because there is so much uncertainty surrounding the Federal Reserve and whether it will taper its bond purchasing program in September.

“I think the pressure on gold prices is still going to be there because there is the whole taper thing in mid-September,” she said.

While investors wait for the Federal Open Market Committee meeting in September, Fung said she is expecting volatility to remain high as prices remain range bound.

In the second quarter, SPDR Shares Gold trust saw its gold reserves decline by 247.55 metric tons; however, there are some preliminary signs that the selling has come to a close. On Friday and Wednesday, the trust saw inflows for the first time since May 29. As of Wednesday, reserves were at 913.23 metric tons.

By Neils Christensen of Kitco News nchristensen@kitco.com

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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