According to the Bloomberg, John Paulson lost almost $1 billion of his own money in two days. The hedge fund manager, who has almost all of his personal wealth invested in the funds at Paulson and Co. with gold denominated shares, lost $973 million in trading on Friday and Monday alone. The manager has been a big fan of gold for some time, and his funds have invested heavily in gold stocks in the past.
Since the start of the year the hedge fund manager has lost more than $1.5 billion of his own money, simply because his holdings are in gold rather than traditional currency. Paulson has made several disastrous bets in recent years, but this, assuming gold doesn’t turn around, may be his worst ever.
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According to the Bloomberg piece, Paulson started 2013 with about $9.5 billion invested across his hedge funds, and about 85 percent of that was held in the gold denominated shares that Paulson & Co. offers.
Paulson’s returns have been poor for the last two years, and this blow to his personal wealth, and presumably that of many of his clients, will not improve his reputation in the hedge fund world. Paulson’s funds were apparently up in the first quarter of 2013 but those returns will almost certainly have stumbled, particularly for those holding shares in gold.
Paulson did, however, get into gold shares when the commodity was selling at $950 an ounce in April 2009. Gold futures due for delivery in June closed yesterday at $1,361.10. That means he’s still up for the lifetime of his investment, despite the prodigious losses in the last two days.
At the end of the first quarter the Paulson & Co. Gold fund was down 28 percent for the year. The losses in the value of gold in recent days will certainly have compounded those losses. Two Paulson funds were among the five worst performers in 2012. So far in 2013 he is almost certainly among the worst performers.
Many hedge fund managers, including Paulson, have talked up the role of gold as a hedge against inflation. The inflation, according to the usual argument, is due once the economy starts operating on a normal footing again as central bank easing has debased the US dollar.
Recent movements in the value of gold have not borne this strategy out.