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Billionaire Investor Bets on Gold

Written By Brian Hicks

Posted August 16, 2012

The billionaire John Paulson has really got it in for gold. He has added 4.53 million shares in the gold exchange-traded fund SPDR Gold Trust (NYSEARCA: GLD) and shares of other gold companies while getting rid of other stocks. This means his $21 billion hedge fund now has more than 44 percent of its U.S. equities pegged to the fate of gold bullion.

Paulson & Co., which has its largest positions in SPDR Gold Trust, also made further purchases of NovaGold Resources Inc. (TSE: NG) shares. Although Paulson sold some of his stake in AngloGold Ashanti Ltd. (NYSE: AU) and Gold Fields Ltd. (NYSE: GFI), it was the extensive sales in energy, automobile parts, and financial stocks that left gold-related securities occupying a place of prominence in the company portfolio. In fact, they’re at their highest in three years.

The downside to this move, of course, is that the fund is now far more vulnerable to volatile bullion prices, even as Paulson fights to recover from his enormous losses just last year.

This year, the fund has lost 23 percent on the Gold Fund and 18 percent on the Advantage Plus Fund. The latter lost value by 51 percent in 2011. Advantage makes its profits off corporate dealings (takeovers, mergers, bankruptcies, and the like).

As of the end of March last year, Paulson’s U.S. holdings were at $34.3 billion, of which $7.7 was invested in gold related stocks. In the time since, the fund’s general assets have dropped quite sharply.

Paulson has previously stressed that he sees gold as his protection against the fickle nature of currency. That’s why, presumably, the fund has been buying up mining companies in anticipation of rebounding gold prices.

Along with disposing of some stake in AngloGold and Gold Fields, the Paulson fund also let go of some shares of Anadarko Petroleum (NYSE: APC), Motorola Mobility (NYSE: MMI), Medco Health (NYSE: MHS), El Paso LLC. (NYSE: EP), and SunTrust Banks (NYSE: STI).

Clearly, Paulson is willing to bet a lot on gold, and we can only hope his faith is justified.