Paulson Gold Bet DIY?

Chidem Kurdas

One could fairly easily build a Do-It-Yourself version of Paulson & Co.’s portfolio of gold and gold-related businesses. Its largest component  is an exchange-traded fund, the SPDR Gold Trust—nothing could be simpler. You could ask why  people pay hefty fees to Paulson & Co. to buy an ETF.

Others are busy trying to replicate the Paulson gold fund, launched at the beginning of this year.

As of April, Paulson’s portfolio included African gold miners Randgold Resources,  Iamgold Corp, Gold Fields Ltd. and Anglogold Ashanti Ltd.; Canadian NovaGold Resources Inc and  Kinross Gold Corp. Another big investor in NovaGold  is George Soros’ Quantum Partners.  

Paulson & Co.’s holding in the SPDR Gold Trust has grown to more than $3.43 billion from $2.8 billion a year ago, as the price of the metal rose. So it looks like a great investment, but the company has said that the position was established as a hedge because its funds have a share class denominated in gold.  

It other words, Paulson did not buy the ETF as an investment strategy—though who can quarrel with the big gain, whatever the rationale for buying? One complication is that if Paulson sold the holding, because it is a significant portion of SPDR Gold Trust, there would be a downward impact on the price. Replicators of the portfolio won’t know when Paulson will exit.

However, judging from John Paulson’s recent remarks on the danger of coming inflation, the gold bet appears to be long term. He was recently quoted as saying: “Within three-to-five years, we could see high single, if not double-digit rates of inflation.”

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Tags: Gold, John Paulson