Paulson & Co. – a Victim of Redemptions?

Today news hit that John Paulson has finally sold a big chunk of his position in GLD. It is not terribly surprising that this happened in the quarter when gold made its low. After Paulson sold his holdings in bank stocks, the group soared, with many of the stocks he had sold at the lows rising by 200% and more therafter. However, this time it has probably less to do with his bad timing, but very likely more with the bad timing of investors in his funds. As the Bloomberg article mentions:

 

“Paulson & Co., the largest investor in the SPDR Gold Trust, the biggest exchange-traded product for the metal, pared its stake to 10.2 million shares in the three months ended June 30 from 21.8 million at the end of the first quarter, according to a government filing yesterday. The New York-based firm, which manages $18 billion, cut its ownership for the first time since 2011 “due to a reduced need for hedging,” according to an e-mailed response to questions.”

 

(emphasis added)

A friend reminded us that Paulson & Co. runs many funds that are denominated in gold. Any redemptions from these funds would therefore reduce the need for hedging. So it seems that Paulson's investors have cut their exposure to the gold denominated versions of his funds at exactly the wrong moment. This is actually something that always tends to happen near market lows. Apparently a number of other prominent hedge funds, including the Soros fund, also cut their exposure in the second quarter. So far they have all been wrong twice: first by holding on until the lows were made, and then by selling just as the market reversed and a rally started. As a matter of fact, we think it is a good thing these investors are gone. They were all late-comers to the gold bull market and their involvement has essentially proved to be a curse rather than a blessing. In fact, one should probably begin to get careful once they decide to get involved again, which is bound to happen at some point. In the meantime, these latest news may well contribute to a developing 'wall of worry' backdrop.

 

Gold Stocks – Technical Conditions Continue to Improve

In our last update we discussed the idea that the previous downside gap region in the HUI should begin to provide support if the recent advance was the 'real McCoy'. This appears to have happened and hopefully this time the support will manage to hold.

In addition, the HUI has in the meantime already advanced toward the 100-day moving average, which has not happened in a long time. A new MACD buy signal has been given as well. Last but not least, although this is written before the close of trading on Thursday, it appears as though the index may finally be about to make a higher high after putting in its first major higher low last week. This clearly represents a notable change in the market's character.

 


 

HUI-annot

The HUI daily. The technical backdrop continues to improve – click to enlarge.

 


 

Below is another look at the HUI-gold ratio, which has broken its previous downtrend and continues to advance. Currently the ratio is close to a lateral level of resistance, but it seems likely that it will be overcome. An ongoing rise in this ratio is a necessary precondition for the continuation of the rebound.

 


 

HUI-gold ratio

The HUI-gold ratio – there are numerous positive divergences, and it appears as though it is finally overcoming its medium term downtrend line for good – click to enlarge.

 


 

Gold – Dips Are Getting Bought, Sentiment and Positioning Leave a Lot of Room for Further Improvement

Gold suffered another sharp dip early in Thursday's trading, but once again buying emerged in an area of near term support. Note the surge in trading volume near the intraday lows. The probability that resistance in the $1,350 area will fall is clearly rising – the more often dips elicit new buying and the more often the resistance area is tested, the more likely it will fall.

 


 

Dec Gold-30 minute

Gold December futures contract, 30 minute chart. The dip early on Thursday has attracted buyers. Volume near the low was strong, which is often a positive indication – click to enlarge.

 


 

Lastly, we want to briefly comment on recent developments on the sentiment and positioning front. The most recent commitments of traders reports show that big speculators are finally reducing their gross short positions in gold futures, leading to a slight increase in their net long position. The net long position had recently fallen back to levels last seen in 2005. Contrary to the widespread idea that an increase in speculative short positions is a positive, we hold that on the contrary, that bulls want to see growth in the net long position held by large speculators. This is so because this is the group that usually gets market direction right and the buying and selling of which is the major driver in the futures market. It only serves as a contrary indicator at extremes. Quite often it happens even near extremes that the large speculator category is beginning to take defensive action shortly before major highs or lows are reached (this happened e.g. in the silver market shortly before it topped in late April 2011).

Since recently a short term extreme in prices and positioning has in fact been reached, a change of opinion by this group of market participants would open the way for at least a major retracement rally. Here is a chart depicting the positioning of futures traders:

 


 

CoT gold

Commitments of traders in COMEX gold futures, via sentimentrader. Large speculators have finally stopped adding to their gross shorts and have begun to reverse the recent trend in positioning – click to enlarge.

 


 

Along similar lines, we find that the 'public opinion' chart – a composite of various sentiment surveys – remains at a very low level, just slightly off its recent lows. Should the recent rally prove durable, there would be a lot of negative sentiment that could be unwound and provide fuel for additional advances. Similar to the CoTs, negative sentiment is not a bullish indicator per se. It is contrarian only near extremes. Once a trend changes, it can help to support and magnify the new trend.

In other words, this will only be meaningful if a significant trend change is indeed in the works (the obvious caveat to this is that gold has yet to move above significant short term resistance). However, once one can be reasonable certain that a more durable trend change is indeed underway, it will of course be a good thing that the indicator is currently still at such a low level.

 


 

Public opinion gold

Gold, public opinion. If the market changes direction, there is a lot of room for sentiment to move from one extreme to the other – click to enlarge.

 


 

Conclusion:

So far, so good.

 

Addendum:

Shortly after we finished writing this update, gold has indeed broken out above the $1,350 resistance level. So a few of the above comments have already been superseded. If the breakout holds, there is likely going to be additional upside in the short to medium term.

 

 

Charts by: StockCharts, BarCharts, Sentimentrader


 

 
 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

3 Responses to “Gold and Gold Stocks Update – John Paulson Sells GLD”

  • ManAboutDallas:

    There’s another side to the GLD redemption : it’s how the Smart Money, i.e. the Soros’ and the Paulson’s, arbitrage their way into physical gold. Soros has done this already, then bought that huge call position in GDX or GDXJ, can’t remember which. Paulson may just be doing the same.

  • worldend666:

    A long time since I saw smiles on the faces of gold investors :)

  • rodney:

    Yes, the close at 30.40 for GDX makes it look like a genuine breakout. Strong volume too.

    Long @ 27.42, looking for opportunities to add some more. This could become another bull market.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • The Biggest Stock Market Crashes Tend to Happen in October
      October is the Most Dangerous Month The prospect of steep market declines worries investors – and the month of October has a particularly bad reputation in this respect.   Bad juju month: Statistically, October is actually not the worst month on average – but it is home to several of history's most memorable crashes, including the largest ever one-day decline on Wall Street. A few things worth noting about 1987: 1. the crash did not presage a recession. 2. its...
  • Fed Quack Treatments are Causing the Stagnation
      Bleeding the Patient to Health There’s something alluring about cure-alls and quick fixes. Who doesn’t want a magic panacea to make every illness or discomfort disappear? Such a yearning once compelled the best and the brightest minds to believe the impossible for over two thousand years.   Instantaneous relief! No matter what your affliction is, snake oil cures them all. [PT]   For example, from antiquity until the late-19th century, bloodletting was used to...
  • Canada: Risks of a Parliamentary Democracy
      A Vulnerable System Parliamentary democracy is vulnerable to the extremely dangerous possibility that someone with very little voter support can rise to the top layer of government. All one apparently has to do is to be enough of a populist to get elected by ghetto dwellers.   Economist and philosopher Hans-Hermann Hoppe dissects democracy in his book Democracy, the God that Failed, which shines a light on the system's grave deficiencies with respect to guarding liberty. As...
  • Federal Reserve President Kashkari’s Masterful Distractions
      The True Believer How is it that seemingly intelligent people, of apparent sound mind and rational thought, can stray so far off the beam?  How come there are certain professions that reward their practitioners for their failures? The central banking and monetary policy vocation rings the bell on both accounts.  Today we offer a brief case study in this regard.   Minneapolis Fed president Neel Kashkari attacking a block of wood with great zeal. [PT] Photo credit: Linda Davidson...
  • Thoughtful Disagreement with Ted Butler
      Too Big to Fail?   Dear Mr. Butler, in your article of 2 October, entitled Thoughtful Disagreement, you say:   “Someone will come up with the thoughtful disagreement that makes the body of my premise invalid or the price of silver will validate the premise by exploding.”   Ted Butler – we first became aware of Mr. Butler in 1998, and as far as we know, he has been making the bullish case for silver ever since. Back in the late 90s this was actually a...
  • Donald Trump: Warmonger-in-Chief
      Cryptic Pronouncements If a world conflagration, God forbid, should break out during the Trump Administration, its genesis will not be too hard to discover: the thin-skinned, immature, shallow, doofus who currently resides in the Oval Office!   The commander-in-chief - a potential source of radiation?   This past week, the Donald has continued his bellicose talk with both veiled and explicit threats against purported American adversaries throughout the world.  In...
  • Precious Metals Supply and Demand Report
      Fat-Boy Waves The prices of the metals dropped $17 and $0.35, and the gold-silver ratio rose to 77.  A look at the chart of either metal shows that a downtrend in prices (i.e. uptrend in the dollar) that began in mid-April reversed in mid-July. Then the prices began rising (i.e. dollar began falling). But that move ended September 8.   Stars of the most popular global market sitcoms, widely suspected of being “gold wave-makers”. From left to right: Auntie Janet...
  • The Donald Can’t Stop It
      Divine Powers The Dow’s march onward and upward toward 30,000 continues without a pause.  New all-time highs are notched practically every day.  Despite Thursday’s 31-point pullback, the Dow is up over 15.5 percent year-to-date.  What a remarkable time to be alive.   The DJIA keeps surging... but it is running on fumes (US money supply growth is disappearing rapidly). The president loves this and has decided to “own” the market by gushing about its record run. During...
  • 1987, 1997, 2007... Just How Crash-Prone are Years Ending in 7?
      Bad Reputation Years ending in 7, such as the current year 2017, have a bad reputation among stock market participants. Large price declines tend to occur quite frequently in these years.   Sliding down the steep slope of the cursed year. [PT]   Just think of 1987, the year in which the largest one-day decline in the US stock market in history took place:  the Dow Jones Industrial Average plunged by 22.61 percent in a single trading day. Or recall the year 2007,...
  • Stocks Up and Yields Down – Precious Metals Supply & Demand
      Where the Good Things Go Many gold bugs make an implicit assumption. Gold is good, therefore it will go up. This is tempting but wrong (ignoring that gold does not go anywhere, it’s the dollar that goes down). One error is in thinking that now you have discovered a truth, everyone else will see it quickly. And there is a subtler error. The error is to think good things must go up. Sometimes they do, but why?   Since putting in a secular low at the turn of the millennium,...
  • The 2017 Incrementum Gold Chart Book
      A Big Reference Chart Collection Our friends at Incrementum have created a special treat for gold aficionados, based on the 2017 “In Gold We Trust Report”. Not everybody has the time to read a 160 page report, even if it would be quite worthwhile to do so. As we always mention when it is published, it is a highly useful reference work, even if one doesn't get around to reading all of it (and selective reading is always possible, aided by the table of contents at the...
  • Precious Metals Supply and Demand
      Fundamental Developments The prices of the metals shot up last week, by $28 and $0.57.   Heavy metals became pricier last week, but we should point out that the stocks of gold and silver miners barely responded to this rally in the metals, which very often (not always, but a very large percentage of the time) is a sign that the rally is unlikely to continue or hold in the short term. [PT]   Last week, we said:   “One way to think of these moves is...

Support Acting Man

Top10BestPro
j9TJzzN

Austrian Theory and Investment

Archive

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com