John Paulson sees gold in early phase of a longer bull market

John Paulson says gold’s run has room to continue, a view that matters for retail investors because the metal often sits at the center of debates about inflation, currencies and portfolio hedges. In an interview Wednesday on CNBC’s “The Exchange,” the billionaire investor said he believes gold is in the “early stages” of a longer bull market.

Paulson, known for making billions betting against the U.S. housing market before the financial crisis, told CNBC that gold is benefiting from growing skepticism toward paper currencies. Paper currencies, also called fiat currencies, are government-issued money such as the U.S. dollar that is not backed by a physical commodity.

“As people lose faith in paper currencies, gold as an alternative will continue to grow,” Paulson said on CNBC.

Gold is often treated as a store of value because it is scarce, widely traded and not issued by a central bank. Bullion means physical gold, usually in bars or coins. Paulson said demand for bullion is widening, with central banks adding gold to their reserves and private buyers showing more interest.

Central-bank reserves are assets held by monetary authorities to support financial stability and manage currencies. Paulson told CNBC that central-bank demand has kept rising, and he argued that gold is becoming a more suitable reserve asset as fiat currencies lose appeal.

CNBC reported that Paulson shifted toward gold in 2009 after the financial crisis, when he argued that large fiscal and monetary stimulus would weigh on the U.S. dollar. Fiscal stimulus refers to government spending or tax measures, while monetary stimulus usually means central-bank actions such as lower interest rates or bond buying. Since that shift, CNBC said gold prices have roughly quadrupled, rising above $5,000 before retreating.

Why Paulson favors gold miners

Paulson told CNBC he sees more upside in gold-mining stocks than in bullion itself, especially companies with large undeveloped deposits. Mining shares can offer leveraged exposure to gold prices because a higher gold price may increase the value of the metal a company expects to produce. That leverage can work both ways, since miners also face operating, financing and project-development risks.

“I think the greatest way to invest is to invest in early-stage gold stocks,” Paulson said.

His comments came as NovaGold Resources announced it would acquire Paulson Advisers’ 40% stake in the Donlin Gold project in Alaska. Paulson serves as co-chairman of NovaGold, according to CNBC, and he pointed to the company as an example of the kind of stock exposure he favors.

Paulson said NovaGold has 40 million ounces of gold in indicated and measured resources and reserves, with a market capitalization of $4.2 billion. He told CNBC that those assets give the company leveraged exposure to higher gold prices.

For investors watching gold, the takeaway is less about one trade and more about the argument behind it: Paulson is tying the case for gold to currency confidence, central-bank buying and the economics of mining companies. CNBC reported his view, but future gold prices will depend on factors including interest rates, inflation expectations, the dollar and demand from both institutions and private buyers.

This story draws on original reporting from CNBC.