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!

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: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

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:

  • Stock Market Manias of the Past vs the Echo Bubble
      The Big Picture The diverging performance of major US stock market indexes which has been in place since the late January peak in DJIA and SPX has become even more extreme in recent months. In terms of duration and extent it is one of the most pronounced such divergences in history. It also happens to be accompanied by weakening market internals, some of the most extreme sentiment and positioning readings ever seen and an ever more hostile monetary backdrop.   Who's who in the zoo in...
  • How the Global Trade Contraction Begins
    Historical Evidence The world grows increasingly at odds with itself, with each passing day.  Divided special elections.  Speech censorship by Silicon Valley social media companies.  Increased shrieking from Anderson Cooper.  You name it, a great pileup is upon us.   It was probably Putin's fault (just a wild guess) [PT]   From our perch overlooking San Pedro Bay, the main port of entry for Chinese made goods into the USA, facets of the mounting economic catastrophe come...
  • TARGET-2 Revisited
      Capital Flight vs. The Effect of QE Mish recently discussed the ever increasing imbalances of the euro zone's TARGET-2 payment system again in response to a few articles which played down  their significance. He followed this up with a nice plug for us by posting a comment we made on the subject. Here is a chart of the most recent data on TARGET-2 available from the ECB; we included the four largest balances, namely those of  Germany, Italy, Spain and the ECB itself.   The...
  • Gold Sector – An Obscure Indicator Provides a Signal
    The Goldminbi In recent weeks gold apparently decided it would be a good time to masquerade as an emerging market currency and it started mirroring the Chinese yuan of all things. Since the latter is non-convertible this almost feels like an insult of sorts. As an aside to this, bitcoin seems to be frantically searching for a new position somewhere between the South African rand the Turkish lira. The bears are busy dancing on their graves.   Generally speaking bears have little to...
  • When the Freaks Run Wild
      Conditioned to Absurdity The unpleasant sight of a physical absurdity is both grotesque and interesting.  Only the most disciplined individual can resist an extra peek at a three-legged hunch back with face tattoos.  The disfigurement has the odd effect of turning the stomach and twisting the mind in unison.   Francesco Lentini, the three-legged man. Born in Sicily in 1881 with “three legs, four feet, sixteen toes and two pair of functioning genitals” he made a career of...
  • What Have You Done For Me Lately? Precious Metals Supply and Demand
      Aragorn's Law or the Mysterious Absence of the Mad Rush Last week the price of gold dropped $8, and that of silver 4 cents.  There is an interesting feature of our very marvel of a modern monetary system. We have written about this before. It sets up a conflict, between the perverse incentive it administers, and the desire to protect yourself in the long term.   Answer: usually when it is too late... [PT]   Consider gold. Many people know they should own it. They...
  • An Inquiry into Austrian Investing: Profits, Protection and Pitfalls
    Incrementum Advisory Board Discussion Q3 2018 with Special Guest Kevin Duffy “From a marketing perspective it pays to be overconfident, especially in the short term. The higher your conviction the easier it will be to market your investment ideas. I think the Austrian School is at a disadvantage here because it’s more difficult to be confident about your qualitative predictions and even in terms of investment advice it is particularly difficult to be confident in these times because we...
  • Climbing the Milligram Ladder - Precious Metals Supply and Demand
    FRN Muscle Flexing Shh, don’t tell the dollar-paradigm folks that the dollar went up 0.2mg gold this week. Or if that hasn’t blown your mind, the dollar went up 0.01 grams of silver. It’s less uncomfortable to say that gold went down $10, and silver fell $0.08. It doesn’t force anyone to confront their deeply-held beliefs about money. But it does have its own Medieval retrograde motion to explain.   Even the freaking leprechaun is now offering government scrip...  this really...
  • Introducing the Seasonax Web App
      Closing the Affordability Gap Up until recently, the Seasonax app was only available to users of Bloomberg or Reuters terminals, putting it out of reach of most non-institutional investors. This has now changed. A  HYPERLINK "https://app.seasonax.com/"web-based version has become available which anyone can use, and it comes at a much lower price point as well. When visiting the site where the app is hosted, this is the welcome screen:   Featured patterns at the Seasonax web app...
  • Wall Street - Island of the Blessed
    Which Disturbance in the Farce can be Profitably Ignored Today? There has been some talk about submerging market turmoil recently and the term "contagion” has seen an unexpected revival in popularity – on Friday that is, which is an eternity ago. As we have pointed out previously, the action is no longer in line with the “synchronized global expansion” narrative, which means with respect to Wall Street that it is best ignored.   Misbehaving EM currencies – the Turkish lira...
  • Fundamental Price of Gold Decouples Slightly - Precious Metals Supply and Demand
    The Fundamental Price has Deteriorated, but... Let us look at the only true picture of supply and demand in the gold and silver markets, i.e., the basis. After peaking at the end of April, our model of the fundamental price of gold came down to the level it reached last November. $1,300. Which is below the level it inhabited since Q2 2017. We will look at an updated picture of the supply and demand picture. But first, here is the chart of the prices of gold and silver.   Gold and...
  • The Fake Promise of Adult Day Care
      Cold Dark Clouds The sun always shines brightest in the northern hemisphere during summer’s dog days.  Here in America, from sea to shining sea, the nation burns hot.  But, all the while, cold dark clouds have descended over the land of the free.   In case you ever wondered - yes, they really did say it... [PT]   For example, Senator Mark Warner – an absolute goober – is currently running interference for the Democrats on a proposal to silence political...

Support Acting Man

Item Guides

j9TJzzN

The Review Insider

Dog Blow

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]

 

Mish Talk

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com