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UPDATE 1-Paulson & Co's gold ETF stake unchanged in Q3

Thursday, 14 Nov 2013 | 5:34 PM ET

NEW YORK, Nov 14 (Reuters) - Hedge fund Paulson & Co maintained its stake in SPDR Gold Trust, the world's biggest gold-backed exchange-traded fund, in the third quarter after slashing its stake by more than half in the second quarter when bullion prices plummeted

The New York-based firm, led by longtime gold bull John Paulson, owned 10.2 million shares in the ETF on Sept. 30, unchanged from its holdings on June 30, a filing with the U.S. Securities and Exchange Commission showed on Thursday.

Market watchers said that institutional investors are likely to stay bullish on gold based on expectations that the Federal Reserve will not cut its bond-buying stimulus any time soon.

"For hedge fund managers like Paulson, I think they are long-term investors," said Axel Merk, portfolio manager of California-based Merk Funds, which have about $450 million assets under management.

"With Janet Yellen, we know that the Federal Reserve is likely to err on the side of inflation, so there is a good reason to continue holding onto it," said Merk, whose firm also owns a stake in SPDR Gold Trust.

Gold prices were little changed after the filings by Paulson. On Thursday, bullion rose after the nominee for Federal Reserve chairman, Janet Yellen, defended the U.S. central bank's bold steps to spur growth, suggesting the massive bond-buying stimulus will continue.

In its second-quarter filings, Paulson sharply cut its stake to 10.2 million shares from 21.8 million, marking the first time the firm cut its gold ETF stake since the fourth quarter of 2011.

Paulson shot to fame in 2007 with a prescient bet against subprime mortgages and repeated his success in 2009 with a bet on gold.

Investors pay close attention to the quarterly filings by Paulson and other notable hedge fund managers because they provide insight into whether the so-called "smart money" has lost faith in gold as a hedge against inflation and economic uncertainty.

The price of gold gained 8 percent during the third quarter, its largest quarterly gain in a year, thanks to a sharp rebound rally following a record 23 percent drop in the second quarter in which it posted a $225 two-day dive in mid April.