Billionaire Paulson the biggest loser after precious metal falls
Gold is in an official bear market after a 20 per cent fall, writes Katherine Burton.
Billionaire John Paulson lost more than $US300 million ($285 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 $US9.5 billion invested across his hedge funds, of which about 85 per cent is invested in gold share classes. Gold dropped 4.1 per cent on Friday, shaving about $US328 million from his net worth on this bet alone.
Gold tumbled and entered a bear market after falling more than 20 per cent since August 2011, bringing more bad news for Mr Paulson, 57, who has struggled with poor returns for the past two years. He told investors last year that his $US700 million gold fund would beat his other strategies over five years because gold was the best hedge against inflation and currency debasement as countries pump money into their economies. The fund slumped 28 per cent this year through to March, a source 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 & Co, said in an emailed statement. "We started investing in gold at $US900 in April 2009 and while it's down from its peak to $US1500, 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 & Co funds, including the firm's founder, lost about $US62 million on Friday on their gold stock investments, based on holdings as of December 31 last year.
Paulson & Co's biggest wagers in miners include a 7.35 per cent stake in AngloGold Ashanti.
Goldman Sachs said 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 gold through to next year.
Deutsche Bank cut its 2013 gold outlook last week by 12 per cent, citing a strengthening dollar and a lack of haven buying.
Mr Reade said gold would appreciate in the long run because governments are pumping money into the economy at a rate not seen before.
"We expect the strengthening of the economy and stockmarket to cause money supply to rise more than real growth and eventually lead to inflation," he said.