Paulson & Co more than halves gold ETF stake in Q2

John Paulson
David Grogan | CNBC
John Paulson

Paulson & Co more than halved its stake in SPDR Gold Trust, the world's biggest gold-backed exchange-traded fund, in the second quarter, when the bullion price lost nearly a quarter of its value.

The prominent U.S. hedge fund, led by longtime gold bull John Paulson, owned 10.2 million shares in the ETF on June 30, compared to 21.8 million shares on March 31, a filing with the U.S. Securities and Exchange Commission showed on Wednesday.

(Read more: Paulson's gold fund plunges 65% through June)

That marks the first time Paulson cut his gold ETF stake since the fourth quarter of 2011.

In addition, Paulson also dissolved his stake in Barrick Gold, the No. 1 gold mining company.

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

(Read more: Is sentiment toward gold shifting again?)

Their massive stakes in SPDR Gold Trust, backed by 400-ounce physical gold bars, also have tremendous influence in gold prices as redemptions in the ETF require selling the metal in the open market.

SPDR Gold Trust held 968.3 tonnes of gold at the end of the second quarter, down 252.6 tonnes, or 21 percent, from the first quarter.

"Paulson got out of half of his position, who's to say he's not going to get out of his other half over the next three months," said Comex gold options floor trader Jonathan Jossen.

During the quarter, Third Point's Daniel Loeb also slashed his holdings in the gold ETF, while George Soros switched to owning massive put options in the second quarter from holding calls in Market Vectors Junior Gold Miners ETF in the previous quarter.

Boston-based Baupost, one of the industry's most-revered hedge funds run by Seth Klarman, boosted its stakes in Canadian gold mining shares by initiating a 3.3 million share position inYamana Gold and 2.1 million shares in Kinross Gold while keeping his 21.7 million stake in NovaGold Resources.

Short-term bottom?

The price of gold fell 23 percent during the second quarter, highlighted by a record two-day $225 drop on April 12 and April 15, as a better overall global economic outlook hit gold's appeal as a hedge.

Many traders said that gold's free fall to a three-year low at $1,180 an ounce on the last day of June was a result of forced selling by funds as they met client redemption requests.

However, that could also suggest that funds are done or close to finish selling their gold, indicating that resurgent buying could lift bullion prices.

(Read more: Paulson's gold fund limps forward)

"There is a large possibility the washout needed after the big decline occurred in Q2. That could signal a short-term low was in place for gold," said Adam Sarhan, chief executive officer of Sarhan Capital.

Despite relentless selling by funds, retail investors continue to buy physical gold coins and bars to take advantage of the bargain gold prices, while Asian physical jewelry and investment demand also rose to unprecedented levels.

Spot gold rose 0.7 percent to near $1,345 an ounce on Wednesday after the filings by Paulson and other hedge-fund managers.