John Paulson, one of the biggest gold bulls, exits a third of his gold ETF holdings  

November 15, 2011

Paulson, the multi-billionaire hedge fund manager, who successfully made money from the sub-prime crisis in 2008, was betting very big on gold

Moneylife Digital Team

John Paulson, multi-billionaire hedge fund manager, has sold one-third of his total holdings of GLD, an ETF, as of 30 September 2011. From 31.5 million shares or $4.6 billion at the end of the second quarter, Mr Paulson’s investment in GLD was down to 20.2 million or $3.2 billion.

It may be remembered that Mr Paulson made billions of dollars in the US housing market crash in 2008, by buying credit default swaps—a form of insurance that went up in value as the mortgages turned bad. In 2009, Mr Paulson decided that in the post-crash mess, gold would go up in value and it did.

But Mr Paulson has been having a tough time of late. Selling gold may not mean that he believes that gold has peaked. It may only reflect the redemption pressures. Mr Paulson has been struggling to make money in 2011.

The AUM (assets under management) has dropped from $29 billion to $20.7 billion as per filing with Securities & Exchange Commission. Mr Paulson had also bet big on financial stocks but while this worked in 2009 and 2010, it has been a disaster this year. However, he has added Bank of America, to the portfolio.

Gold has been on a continuous rise from 2001 thanks to low interest rates in the US, which leads to negative real interest rates and reduces the attractiveness of US treasuries. Another major hedge fund player who was bullish on gold was George Soros but he sold all his gold holdings sometime near the peak price of gold earlier this year.

Mr Soros clearly dissuades investing in gold for people like us with these two statements: “When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment. The ultimate asset bubble is gold.”

“I called gold the ultimate bubble, which means it may go higher. But it’s certainly not safe and it’s not going to last forever.”