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


 

 
 

Emigrate While You Can... Learn More

 
 

 
 

Dear Readers!

It is that time of the year again – our semi-annual funding drive begins today. Give us a little hand in offsetting the costs of running this blog, as advertising revenue alone is insufficient. You can help us reach our modest funding goal by donating either via paypal or bitcoin. Those of you who have made a ton of money based on some of the things we have said in these pages (we actually made a few good calls lately!), please feel free to up your donations accordingly (we are sorry if you have followed one of our bad calls. This is of course your own fault). Other than that, we can only repeat that donations to this site are apt to secure many benefits. These range from sound sleep, to children including you in their songs, to the potential of obtaining privileges in the afterlife (the latter cannot be guaranteed, but it seems highly likely). As always, we are greatly honored by your readership and hope that our special mixture of entertainment and education is adding 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:

  • snake-charmerGold Price Skyrockets in India after Currency Ban – Part III
      When Money Dies In part-I of the dispatch we talked about what happened during the first two days after Indian Prime Minister, Narendra Modi banned Rs 500 and Rs 1000 banknotes, comprising of 88% of the monetary value of cash in circulation. In part-II, we talked about the scenes, chaos, desperation, and massive loss of productive capacity that this ban had led to over the next few days.   Indian prime minister Narendra Modi – another finger-wagger, as can be seen in this...
  • wads-of-cashGold Price Skyrockets in India after Currency Ban – Part II
      Chaos in the Wake of the Ban Here is a link to Part 1, about what happened in the first two days after India's government made Rs 500 (~$7.50) and Rs 1,000 (~$15) banknotes illegal. They can now only be converted to Rs 100 (~$1.50) or lower denomination notes, at bank branches or post offices. Banks were closed the first day after the decision. What follows is the crux of what has happened over the subsequent four days.     India's prime minister Nahendra Modi, author of the...
  • shopGold Price Skyrockets in India after Currency Ban – Part IV
      A Market Gripped by Fear The Indian Prime Minister announced on 8th November 2016 that Rs 500 and Rs 1,000 banknotes would no longer be legal tender. Linked are Part-I, Part-II and Part-III updates on the rapidly encroaching police state. The economic and social mess that Modi has created is unprecedented. It will go down in history as an epitome of naivety and arrogance due to Modi’s self-centered desire to increase tax-collection at any cost.   Indian jewelry...
  • very-bad-boyA Note on Gold and India – What is Driving the Gold Price?
      Hidden Motives It is well-known that India's government wants to coerce its population into “modernizing” its financial behavior and abandoning its traditions. The recent ban on large-denomination banknotes was not only meant to fight corruption.   Obviously, this very bad Indian has way too much cash. Just look at him, he looks suspicious! Photo via thenewsminute.com   In fact, as our friend Jayant Bhandari has pointed out, fresh avenues for corruption ...
  • gold-pm-fixIndia's Currency Debacle – An Interview with Jayant Bhandari
      A Major Crisis Last week Jayant Bhandari related the story of the overnight ban of certain banknotes in India under cover of “stamping out corruption” (see Gold Price Skyrockets In India after Currency Ban Part 1 and Part 2 for the details).   Banned 500 rupee banknotes   The problem is inter alia that the sudden ban of these banknotes has hit the Indian economy quite hard, given that 97% of all transactions in the country are cash-based. Not only that, it has...
  • vigilantesWill the Swamp Swallow Trump?
      Permanently Skewed TRUMP HOTEL, New York – Trump’s rambling army – professionals, amateurs, camp followers, and profiteers – is marching south, down the I-95 corridor. There, on the banks of the Potomac, it will fight its next big battle.   Lieutenants in Trump's army: Bannon, Flynn & Sessions Photo credit: Drew Angerer / AFP   Here at the Diary, we do not like to get involved in politics. But this is a special time in the history of our planet – a...
  • santorinigreeceThere Are Two Types of Credit — One of Them Leads to Booms and Busts
      Stumped by the Bust In the slump of a cycle, businesses that were thriving begin to experience difficulties or go under. They do so not because of firm-specific entrepreneurial errors but rather in tandem with whole sectors of the economy. People who were wealthy yesterday have become poor today. Factories that were busy yesterday are shut down today, and workers are out of jobs.   What has caused the bust? The modern-day economic orthodoxy continues to be unable to provide...
  • train-to-hellAll Aboard! Trump’s Express Train to the Future
      Free Money! BALTIMORE – Last week, the Dow punched up above 19,000 – a new all-time record. And on Monday, the Dow, the S&P 500, the Nasdaq, and the small-cap Russell 2000 each hit new all-time highs. The last time that happened was on the last day of December 1999.   Ironically, two events that were almost universally expected to trigger large stock market declines were followed by quite rapid and strong gains. Would the market have fallen if Hillary Clinton had won...
  • jumpAttaining Self-Destruct Velocity
      Bad Monday Some Monday mornings are better than others.  Others are worse than some.  For one Amazon employee, this past Monday morning was particularly bad. No doubt, the poor fellow would have been better off he’d called in sick to work.  Such a simple decision would have saved him from extreme agony.  But, unfortunately, he showed up at Amazon’s Seattle headquarters and put on a public and painful display of madness.   Good-bye cruel world! On this our planet,...
  • yellen_duct_tape_7-16-2014_largeGold Bull Market Remains Intact – Long Term Fundamentals Outweigh Short Term Market Gyrations
      A Strong First Half of the Year, Followed by Another Retreat In early 2016 gold had a big bull run. The precious metal rose close to 25% this year, pushed higher in a summer rally that peaked on July 10th. Gold experienced a bumpy ride over the remainder of the summer though, as investors became increasingly concerned about a potential rate hike by the Federal Reserve. Uncertainty returned to gold market and has intensified further since then.   Initially, gold rallied sharply...
  • david_stockman_0Too Early for “Inflation Bets”?
      The Trump Trade After 35 years of waiting... so many false signals... so often deceived... so often disappointed... bond bears gathered on rooftops as though awaiting the Second Coming. Many times, investors have said to themselves, “This is it! This is the end of the Great Bull Market in Bonds!”   The long bond's long cycle – red rectangles indicate when the post 1980 bull market was held to be “over” or “over for sure” or “100% over”, etc.  We have...
  • workers-powerAbout that Economic Inequality
      Illusory Riches, Obvious Impoverishment I address this essay to two groups. One group is those among the liberty movement, who believe that there’s nothing wrong with inequality. These are often Objectivists, who unknowingly defend a regime that artificially suppresses working people.   And suddenly, you feel much lighter...   The other group is those among the Left who still call themselves liberals. They say they don’t like inequality, but nevertheless...

Austrian Theory and Investment

Support Acting Man

Own physical gold and silver outside a bank

Archive

j9TJzzN

350x200

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]

 

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

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com