J.P. Morgan is bullish on gold even after Paulson dumped holdings

Paulson & Co. may have sold off more than half of its holdings in the second quarter, but sentiment in the gold market has started to turn bullish. J.P. Morgan analysts noted that gold "shrugged off" news of the Paulson sale. This may mark an ending to the 10-month, 25% fall in gold.

Myra Saefong
August 16, 2013, 12:41 PM
Market Watch

Paulson & Co. sold off more than half of its holdings in the world’s largest gold-backed exchanged-traded fund in the second quarter, but sentiment in the gold market has started to turn bullish.

J.P. Morgan analysts said in a note Thursday that gold GCZ3 +1.14% had “shrugged off” news of the Paulson sale. In a filing with the Securities and Exchange Commission late Wednesday, the investment management firm said it cut its stake in the SPDR Gold Trust GLD +1.10% to 10.2 million shares. Gold prices on Thursday, however, jumped 2.1%.

“This may be delivering an exclamation mark to define the end of the 10-month, 25% fall in gold and 50% fall in gold equities,” analysts at J.P. Morgan, led by John Bridges, said.

They said their favorite gold stocks are Goldcorp Inc. GG +1.73% , Eldorado Gold Corp. EGO +0.98% , New Gold Inc. NGD +3.81% and Newmont Mining Corp. NEM -0.45% .

The J.P. Morgan analysts’ comments followed a note from Citi Research earlier this week in which analysts there said it wasn’t time to turn bullish on gold equities.

Gold futures prices have lost about 19% this year, but are set to finish the week with gain of roughly 4% this week, their largest weekly gain in five.

“China and India remain large physical buyers of the metal,” the J.P. Morgan analysts said. “We believe this highlights that enthusiasm for the metal remains strong amongst the majority of the world’s population.”

They pointed out the World Gold Council in a report this week said gold demand remains strong. Overall gold demand fell in the second quarter, the WGC said, but on a dollar basis, total coin and bar demand jumped 56% and jewelry demand climbed 20%.

“Demand going through China and India shows us two things,” said Jan Skoyles, head of research at The Real Asset Co., a precious-metals investment platform provider. “The first is that gold controls (in India) will not dampen demand for a safe, faceless currency. The second is that these countries’ demand is not price dependent; they do not flood in when they think the price in climbing.”

“Instead, they choose to buy gold because it is a form of savings,” she said.

Jonathan Citrin, founder and executive chairman at CitrinGroup, said that sentiment for gold is “trending toward positive, with the potential for considerable upside.”

“Appreciation itself is the main driver of recent price trends,” he said. “After terrible performance year-to-date, we are finally gaining slight momentum in gold — higher highs for once.”

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