John Paulson’s Big New Bet on Gold

Friday, November 20th, 2009

Gold is getting a great deal of sponsorship, in general, but it is even more notable, when some of that sponsorship is coming from the likes of this era’s new contrarians. John Paulson, who personally made $4-billion betting against subprime mortgages in 2007, has shifted his focus to gold during the last 9 months, and now he is ramping it up yet another notch. On another note we’ve also covered in the recent past, David Einhorn’s now well-known accumulation of gold bullion, as well as S&P500 Puts.

Yesterday’s Wall Street Journal discusses Paulson’s latest plans:

John Paulson, who scored about $20 billion of profits between 2007 and early 2009 wagering against the housing market and financial companies, is launching a hedge fund dedicated to buying up shares of gold miners and other bullion-related investments, according to investors.

He is starting a new fund with his own money:

Mr. Paulson told his investors he personally would invest between $200 million and $250 million in the new fund, which he said will begin on Jan. 1, according to an investor at the meeting.

His theory on gold differs, in that Paulson seems to have recognized quite rapidly that central banks’ appetite has shifted in favour of the shiny stuff, and that their appetite is not strictly based on concerns of inflation. If you read between the lines, Paulson is suggesting that will be the gravy (when it indeed happens), and the real impetus is the constrained supply:

He noted that central banks around the globe have gone from sellers of gold to buyers, and that the global supply of gold is constrained.

While harmful inflation isn’t on the horizon, he said, Mr. Paulson argued that there is a risk of a burst of inflation down the road. That’s because in the past there’s been a lag between a surge in money supply and higher inflation. Gold often does well when inflation rises.

Mr. Paulson told investors that the Federal Reserve will prove reluctant to raise interest rates, given the weakness in the economy, which also could pave the way for higher inflation, at least at some point, another reason for his growing conviction about gold.

This is an interesting development for the stocks of gold producers. At the very least Paulson and other investors who are devoted to this theme will add key support to the market’s appetite for gold equities and bullion.

John Paulson Making Big New Bet on Gold

Tags: 9 Months, Central Banks, Contrarians, David Einhorn, Global Supply, Gold, Gold Bullion, Gold Gold, Gold Miners, Gravy, Hedge Fund, Housing Market, Impetus, inflation, John Paulson, Money Supply, New Bet, P500, Shiny Stuff, Subprime Mortgages, Wall Street Journal, Wea
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Jim Rogers: China Equities Could Collapse, Commodities Still Best

Friday, July 31st, 2009

Investing legend, Jim Rogers, says that he is not buying any stocks in China right now nor is he selling any, but says he will buy more Chinese stocks when they collapse. Stocks have doubled in 9 months. Instead, he says the best way to invest in China is via commodities.

No matter what, the Chinese will pay all their bills because they absolutely need to buy all the commodities they don’t produce themselves. Cotton, Nickel, iron ore, steel, and Agricultural Commodities are among their biggest requirements.

Click to view this July 27, 2009 interview with Bloomberg.

Jim Rogers was interviewed by the Globe and Mail on July 30, 2009 and re-iterated his convictions about commodities:

So you see commodities, even after a 10-year bull run, as still offering the best investment opportunities? Isn’t that dependent on a global economic recovery?

If the world economy is going to get better, commodities will lead the way, because of the shortages. I cannot imagine a better place to be. When you come off periods like this, you want to be in the things where the fundamentals are getting better – those are the ones that always lead the next bull market.

If the economy is not going to improve, commodities are still the best place to be … because governments are printing huge amounts of money all over the world.

Throughout history, when people have printed lots of money, it has always led to higher prices. Throughout history, when governments printed, the money has to go somewhere. Historically, it has always gone into real assets, as people try to protect themselves. … It’s not going to go into people buying new cars, it’s going to go into wheat and silver and oil first. It may go into new cars eventually, but it’s going to go into real stuff first – at least it always has. I’d rather own commodities than just about anything I can think of in a period when the whole world is debasing paper money.

Source: Bloomberg, Youtube | Globe and Mail, July 30, 2009

Tags: 9 Months, Agricultural commodities, Bloomberg, Buying New Cars, Chinese Stocks, Collapse, Commodities, Economic Recovery, Globe And Mail, Investment Opportunities, Iron Ore, Jim Rogers, Legend Jim, Lots Of Money, Money Source, Nickel Iron, oil, Paper Money, Real Assets, Real Stuff, Wheat, World Economy
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