Paulson: We're still in the early stages of a old bull market

Remember the gold bull market of 2025?

According to billionaire hedge fund manager John Paulson, it’s still going on.

Gold peaked just over $5,500 an ounce in January, before sharply correcting. After a brief surge of safe-haven demand in the early days of the U.S.-Iran conflict, it has traded range-bound between $4,000 and $4,500 for the last few months. 

Some analysts say the sell-off was the end of the gold bull market; however, in an interview on CNBC, Paulson said the bull run is just getting started because the world is losing faith in fiat currencies – especially the dollar. 

“I do think we’re in the beginnings or the early stages of a long-term bull market for gold."

Paulson famously won big in the early 2000s when he bet against subprime mortgages even as the mainstream insisted there was no problem in that sector. After the 2008 financial crisis, Paulson turned his attention to gold, arguing that unprecedented fiscal and monetary stimulus would ultimately weaken the dollar.

He was correct.

Based on the CPI, the dollar has lost about 35 percent of its value since 2008. And of course, the CPI understates the reality of inflation. In that same period, the price of gold has nearly quadrupled.

Why?

Paulson said the world is losing faith in fiat money. 

"As people lose faith in paper currencies, gold as an alternative will continue to grow.”

He went on to explain that this growing preference for gold over dollars is reflected in both central bank and investor demand.   

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

In fact, the European Central Bank confirmed earlier this year that gold has passed Treasuries, becoming the world’s top reserve asset.

Last year was the fourth-largest expansion of central bank gold reserves on record, at 863 tonnes. That was down 21 percent year-on-year, but still well above the 2010-2021 annual average of 473 tonnes.

The all-time high was set in 2022 (1,136 tonnes). It was the highest level of net purchases on record, dating back to 1950, including since the suspension of dollar convertibility into gold in 1971.

Paulson said that given this de-dollarization and the growing distrust of fiat currencies in general, the long-term trajectory for gold is up despite current headwinds.

"I think the trend of gold will continue to be on the upside."

We can also see worries about fiat currencies reflected in an increasingly bearish bond market. Despite rate cuts in 2024 and the Fed’s more recent reluctance to hike despite persistent inflation, yields on the long end of the curve continue to creep higher. This signals investor reluctance to loan more money to fiscally irresponsible governments.

As Reuters recently reported, “Inflation, heavy government borrowing, policy uncertainty and bouts of stocks and bonds falling in tandem have weakened bonds' role as a ballast, prompting some investors to look for more diversification.”

Paulson is not the only institutional investor bullish on gold. Last year, Morgan Stanley CIO Michael Wilson recommended an aggressive portfolio rebalancing, suggesting investors should cut their bond allocation to 20 percent and swap half of the bond portfolio to gold to serve as a “more resilient” inflation hedge.

"Gold is now the anti-fragile asset to own, rather than Treasuries. High-quality equities and gold are the best hedges.”