John Paulson Was Liquidating GLD Holdings in the Third Quarter
Paulson most likely was forced to sell due to losses at his hedge funds in 2011. Many of Paulson's hedge funds were down over 20% due to poor stock picks in BAC, HPQ and Sino-Forest bonds.
The other explanation for Paulson's liquidation is that Paulson's gold exposure was too high versus his assets under management. Gold has outperformed the market in 2011 and the percentage of gold in his fund might have been too high relative to his other assets.
Paulson's liquidation is significant because Paulson is the largest holder of GLD. Investors have commonly worried that gold prices would be punished due to a Paulson liquidation. Fortunately, for GLD holders, Paulson's liquidation did not impact the price of gold.
Paulson is most likely still bullish on gold. He recently gave a speech where he said that a gold bubble was impossible.