Paulson says gold is early in a long bull market

John Paulson said gold is in the early phase of a prolonged rally, pointing to wider demand from central banks and private investors as bullion trades far above its post-financial-crisis levels. The billionaire investor made the comments on CNBC’s “The Exchange” as NovaGold Resources announced a deal to acquire Paulson Advisers’ 40% stake in Alaska’s Donlin Gold project.

“I do think we’re in the beginnings or the early stages of a long-term bull market for gold,” Paulson told CNBC on Wednesday. He said confidence in conventional currencies was a central driver of his view: “As people lose faith in paper currencies, gold as an alternative will continue to grow.”

Paulson is best known for a bet against the U.S. housing market before the financial crisis, a trade that became one of Wall Street’s most profitable. CNBC reported that he turned more constructive on gold in 2009, arguing that the fiscal and monetary response to the crisis would pressure the dollar over time.

Since that shift, CNBC reported that gold prices have roughly quadrupled, moved above $5,000 and then retreated. Paulson’s remarks framed the move as part of a broader change in reserve and investment behavior rather than a short-term price call.

“Gold is becoming the most apt reserve currency in the world, replacing fiat currencies,” Paulson said on CNBC. “The demand from central banks, for instance, has continued to grow, as has the private sector.”

Central bank buying matters for the gold market because reserve managers can be persistent holders, using bullion as an asset outside another country’s credit system. Private-sector demand, by contrast, can include investors seeking exposure through bars, exchange-traded products or shares of companies tied to gold production and development.

Paulson said he sees more upside in gold-mining equities than in bullion itself, particularly companies with large undeveloped resources. “I think the greatest way to invest is to invest in early-stage gold stocks,” he told CNBC.

Mining shares can give investors a different exposure from owning the metal. A company with reserves or resources may become more valuable when the market assigns a higher value to the gold it controls, although that equity exposure also reflects project, financing and company-specific risks.

The remarks came alongside NovaGold’s announcement that it would acquire Paulson Advisers’ 40% stake in Donlin Gold, a project in Alaska. Paulson serves as co-chairman of NovaGold.

Paulson said NovaGold offers exposure to higher gold prices because of the scale of its resource base. “NovaGold has 40 million ounces of gold indicated and measured resources and reserves at the market [capitalization] of $4.2 billion,” he said. “I think the best way to play gold is through stocks like NovaGold, if not NovaGold itself.”

His comments represent his own market assessment. The NovaGold transaction and Paulson’s role at the company give investors a direct corporate context for his preference for gold developers over bullion.

This story draws on original reporting from CNBC.