New York: Billionaire John Paulson lost more than $300 million of his personal wealth on his gold bet, as the precious metal fell to its lowest price in almost two years.
Paulson has roughly $9.5 billion invested across his hedge funds, of which about 85% is invested in gold share classes.
Gold dropped 4.1% on Saturday, shaving about $328 million from his net worth on this bet alone.
Gold tumbled and entered a bear market after falling more than 20% since August 2011, bringing more bad news for 57-year-old Paulson, who has struggled with poor returns for the past two years.
He told investors last year that his $700 million Gold Fund would beat his other strategies over five years because the metal was the best hedge against inflation and currency debasement as countries pump money into their economies.
The fund slumped 28% this year through March, a person familiar with the matter said this month.
“The recent decline in gold prices has not changed our long-term thesis,” John Reade, a partner and gold strategist at Paulson and Co., said in an emailed statement. “We started investing in gold at $900 in April 2009 and while it’s down from its peak to $1,500, it’s up considerably from our cost.”
Paulson investors can choose between dollar-and gold- denominated versions for most of the firm’s funds.
In addition to losses from bullion’s decline, investors in Paulson and Co. funds, including the firm’s founder, lost about $62 million on Saturday on their gold-stock investments, based on holdings as of 31 December 2012. New York-based Paulson and Co.’s biggest wagers in miners include a 7.35% stake in AngloGold Ashanti Ltd.
Goldman Sachs Group Inc.said this week that the turn in the gold-price cycle is accelerating after a 12-year rally as the recovery in the US economy gains momentum. The bank reduced forecasts for the metal through 2014.
Deutsche Bank AG cut its 2013 gold outlook this week by 12%, citing a strengthening dollar and a lack of haven buying, and Societe Generale SA said in an 2 April report that gold is in a bubble.
Paulson’s Reade said gold will continue to appreciate in the long run because governments are pumping money into the economy at a rate not seen before. “Federal governments have been printing money at an unprecedented rate,” said Reade. “We expect the strengthening of the economy and stock market to cause money supply to rise more than real growth, and eventually lead to inflation. It is this expectation of paper currency debasement which makes gold an attractive long-term investment for us.”