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Paulson Says Gold Positions Are Long-Term Investments

Release Date: 
Friday, March 8, 2013

Gold fell in early trading on improved U.S. job growth but recovered its losses on bargain hunting. After falling $13, gold moved $1.40 higher at 7:37 a.m. Pacific Time on the New York Spot Market, at $1,581.00 per ounce. Spot silver was $0.22 higher at $29.23 per ounce. (Click here for the most current spot prices.)

The U.S. economy added 236,000 jobs in February as the unemployment rate fell to 7.7%, its lowest level since Dec. 2008.  Economists had expected the number of new jobs to rise by 160,000 and for the jobless rate to hold at 7.9%.

The World Gold Council expects central banks to remain strong buyers this year after increasing purchases in 2012 by the most in almost five decades. Azerbaijan acquired gold bullion for the first time in more than three years. Azerbaijan plans to increase its gold reserves to ta total of 30 tons by the end of this year. Russia’s Bank Rossi, one of the largest official sector purchasers of gold, increased its reserves for a fourth straight month in January while Kazakhstan also increased its reserves.

Billionaire John Paulson recently defended his gold positions in a letter to clients. “Despite the volatility and drawdown of our gold equity positions, we believe in the long-term outlook for these positions as quantitative easing programs continue around the world, credit expands in the United States and gold equities continue to trade at a significant discount” to historical average valuations, the hedge fund said in a letter to investors.  Paulson told clients in 2012 that his Gold Fund would beat his other strategies over five years because the metal was the best hedge against inflation and currency debasement as countries pump money into their economies.

Philip Silverman, managing director at Kingsview Management in New York, agrees with Paulson on the long-term outlook for gold but discusses some of the short term market pressure on hedge funds investing in gold. “A lot of hedge funds have been burnt by holding gold in an environment where equities are going through the roof. At the same time, a lot of commodity trading advisors were getting out of gold and then going short. The selling is much more of a reaction to what’s going on with gold right now. If you take a long-term horizon, it’s a good time to add gold.”

 (Sources: “Gold drops after jobs data blow out forecasts,” Marketwatch, March 8, 2013; “Paulson Gold Fund Down 18% as Metal’s Slump Foils Rebound,” Bloomberg, March 7, 2013

Gold pares some gains as ECB holds pat,” Marketwatch, March 7, 2013; “Azerbaijan to increase gold reserves,” Mineweb, March 6, 2013; “Korea Joins Russia, Kazakhstan in Boosting Gold Holdings,” Bloomberg, March 6, 2013)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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