John Paulson has increased his stake in Novagold Resources Inc. (NYSEAMEX:NG) up to 12.4%. Disclosure of trading from March 15th up to April 9th revealed that the fund manager increased his stock by 4.5 million shares. The increase in his stake at Novagold supports Paulson’s generally held view that investors should put their money in metals right now. The fund manager is still reeling from a disastrous 2011.
His bet on an early recovery of the US economy, followed by a retreat from that position, left him with all of the losses and few of the gains from bank shares last year. His Paulson Advantage Plus fund finished 2011 down 52%.
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Novagold is a mineral resource exploration development and mining company. The firm has a 50% stake in two of the world’s largest undeveloped gold and copper-gold deposits in Alaska and British Colombia. The company’s operations center on North American deposits and its access to largge undeveloped fields point to a promising future for the company.
The company came to light recently after plans were revealed to spin off Nova Copper as a separate organisation. That plan is part of a strategy by the company to concentrate its work entirely on gold a position that Paulson has been seen to be particularly interested in in the past.
Paulson’s relationship with Gold (NYSEARCA:GLD) has been fraught recently as information suggested his gold centered fund lost 13% in March. That fund is responsible for ownership of the NovaGold shares and is also the largest holder of AngloGold Ashanti stock.
Paulson has been publicly bullish on gold in the past. He urged investors to buy gold as a safe store of value against what he thinks will be high inflation as the economy recovers. His last shareholder letter revealed the same opinion and with the new investment in NovaGold it doesn’t look like he’ll be backing away from commodities any time soon.
He promised investors that his Gold fund would outperform his other funds over the next five years though March’s results work against that premise. That may be an unfair assessment as March’s fall in price was majorly affected by a lack of demand from India, normally the world’s largest demand center, as a strike by jewelers in that country caused a slowdown.
Novagold’s concentration on gold along with the increasing demand from the developing world could see the company rise greatly in value and developing its undeveloped finds will compliment the company’s value. Paulson may be on track for a better 2012 though things are still largely unpredictable with gold. China’s teetering economy may cause a slowdown in world demand and gold would surely be affected by any disaster of that magnitude. Gold as a store of value in harsh economic times may be eclipsed by the fall in industrial demand for the metal.