Why Jefferies’ Chris Wood, billionaire John Paulson say gold’s long term bull market is just getting started

Gold has had one of its most dramatic starts to a year, soaring to record highs in January and crossing $5,500/ounce before falling to $4,000/ounce in late July. The precious metal came under pressure as renewed tensions over the Iran war pushed oil prices higher, raising expectations that the US Federal Reserve could hike interest rates this year.

Gold is now down roughly 7% year-to-date, but it continues to rank among the top-performing assets over the past year as other asset classes play catch-up. According to Jefferies’ Global Head of Equity Strategy Christopher Wood and billionaire hedge fund manager John Paulson, the recent pullback could offer investors an opportunity to gradually start accumulating gold. Both suggest that the precious metal may be at the beginning of a long-term bull run.

"As people lose faith in paper currencies, gold as an alternative will continue to grow," Paulson said in an interview with CNBC. Paulson, whose bet against subprime mortgages became one of the most profitable trades in Wall Street history, turned his attention to gold in 2009.


He argued that fiscal and monetary stimulus following the financial crisis would eventually weaken the US dollar. Since then, gold prices have roughly quadrupled, crossing the $5,000 threshold before pulling back.


Central bank buying
Paulson said demand for bullion is continuing to broaden, led by central banks adding to their reserves alongside rising interest from the private sector. "Gold is becoming the most apt reserve currency in the world, replacing fiat currencies," Paulson said in an interview with CNBC. "The demand from central banks, for instance, has continued to grow, as has the private sector."

However, Paulson believes investors could benefit more from owning gold mining companies than bullion itself, particularly companies with large undeveloped reserves. "I think the greatest way to invest is to invest in early-stage gold stocks," he said.

Chris Wood on gold

Christopher Wood, in his Greed and Fear report said investors should once again begin accumulating gold and gold mining stocks after an extended pause.

He draws a parallel with the dot-com bust, arguing that when the Nasdaq-led technology sector drove the market lower, the bear market had by late 2000 spread beyond technology to other sectors as it became clear that the unwinding of the dot-com boom would affect the broader economy.

Wood believes a similar scenario could unfold if the AI capex boom implodes, which he says would happen if credit issues come to the fore. This comes despite the broadening of the US equity market since the AI capex boom and the related increase in wealth effect in the US stock market, which have been among the main drivers of US economic growth over the past three years, along with easy fiscal policy.

Any such collapse in capex spending would trigger an abrupt shift in US monetary policy expectations from tightening towards easing. For these reasons, Wood believes the time has come for investors to start accumulating gold and gold mining stocks again after an extended pause to refresh.

The World Gold Council echoes this view. At current levels, gold prices are broadly aligned with a global backdrop of moderate growth, cooling but still elevated inflation, and expectations of further, but limited, central bank tightening. Under these conditions, gold is likely to remain relatively rangebound, within a range of ±5%.

However, the stage could be set for a possible breakout. On the upside, clear catalysts such as a worsening economy, a renewed geopolitical shock, a shift towards lower interest-rate expectations or a wave of dip buying could reignite gold's momentum and push prices back towards US$4,500/oz or above. If the signals are strong, gold could move even higher.

On the other hand, resilient economic growth, rising yields and calmer markets could put further pressure on gold. Even so, a decline of more than 10% from current levels could be limited by bargain-hunting demand.

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Meanwhile, continued central bank demand and policy shifts in key markets such as India remain additional wildcards that could subtly influence gold's trajectory in the second half of the year.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)