Money Matters, Simplified.
Gold's Bull Run Is Only Beginning
Sat, 11/21/2009 - 12:35 by Alex Dumortier
That's what hedge fund manager John Paulson told investors at a meeting this week. What's more, he's going to plow up to $250 million of his own wealth into a new, dedicated fund to ride this bull. A word on Paulson's credentials: He made a huge betagainst subprime mortgages, producing a 590% return for one of his funds in 2007 and netting himself a total of $3.7 billion. Should investors saddle up and ride alongside him this time?
Placing his bets
In fact, Paulson & Co. is already one of the
largest shareholders in the
SPDR Gold Trust ETF (NYSE: GLD). At the end
of September, the company's holding was worth $3.1 billion --
more than 15% of its shareholdings. Despite this, a partial
motivation for Paulson in creating the new fund is to
increase his personal exposure to gold.
Furthermore, the fund will invest in gold-related shares and derivatives with the goal of outperforming gold prices. Here again, Paulson & Co. is already a large shareholder in miners AngloGold Ashanti (NYSE: AU), Gold Fields (NYSE: GFI), and Kinross Gold (NYSE: KGC).
A value, a hedge, or a speculation?
Trained as a merger arbitrageur, Paulson is a
value-driven investor. Meanwhile, it's difficult to put an
intrinsic value on an asset that generates no cash flows.
Another value guru,
Berkshire Hathaway 's (NYSE: BRK-A) (NYSE:
BRK-B) Warren Buffett, isn't a fan of gold, for example. Is
Paulson stepping outside his area of competence?
Perhaps, but he isn't going it alone. Paulson is hiring John Reade, the former metals strategist at Swiss bank UBS (NYSE: UBS) and a repeat winner of the London Bullion Market Association's forecasting prize.
Two alternatives to gold
As I argue in "
The Only Asset Worth Owning Today," the outlook for
gold's supply-and-demand equation appears to favor further
price increases in gold. As far as individual investors are
concerned, some exposure to gold looks like a reasonable
choice, but don't overlook other means to hedge your
dollar/inflation risk, such as
international stocksand high-quality dividend stocks.
© 2009 UCLICK L.L.C.
