Gold To Skyrocket As Paulson Personally Invests $250 Million In New Gold Fund

Tyler Durden's picture

Developing story from the WSJ: John Paulson to make "big new bet on gold" and to personally invest $250 million in new gold fund on January 1.

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LoneStarHog's picture

This so-call investment better be in PHYSICAL gold and NOT the typical PAPER GOLD.  This fund had better hold ONLY PHYSICAL with a commitment to NEVER lease/loan.  He had also better make sure that SHORTING the funds shares are FORBIDDEN, as is the typical FRAUD of the present so-call PM funds.

spekulatn's picture

R U f'n serious here? Seriously.



LoneStarHog's picture

What part do you not understand?

Anonymous's picture

he is but you aren't

Anonymous's picture

He did change paper gold into physical one sometime ago.

Anonymous's picture

Yes, about six months ago he saw through GLD (read their 10-k, specifically pages 54 to 58). He was GLD's LARGEST shareholder at that time. He sold those shares and got physical gold instead. Smart man!

lookma's picture

LoneStarHog will be sad:

John Paulson, who scored about $20 billion of profits for his hedge fund between 2007 and early 2009 wagering against the housing market and financial companies, is launching a fund dedicated to buying up shares of gold miners and other bullion-related investments, according to three investors.

Mr. Paulson spoke about the new fund, which will begin on January 1, at a meeting with his investors Tuesday in New York. The gold fund will invest in gold-related shares and gold derivatives and will aim to outperform gold prices.

mule65's picture

I read that he was using GLD ETF.  Bad mistake.  Not impressed.

chumbawamba's picture

Nope, shows a fundamental misunderstanding of the precious metals markets.

I am Chumbawamba.

Cognitive Dissonance's picture

I have a theory on this. We all know (right?) that the GLD ETF prospectus has very interesting language that doesn't make the ETF responsibly for even auditing the gold nor making sure the gold is even physically held, just that they are relying on assurances from various others that its there, trust me.

I have been waiting for the big guys to pile into paper gold. There could be various reasons, including making the GLD ETF "too big to fail" once the big boys get in, meaning that if it turns out there is less or no gold really held, it will get "bailed out" like the banks.

Or the big boys are using"other" money (cough cough Fed cough) to keep the illusion "it's real gold in the EFT" going longer. I've always felt the GLD ETF (and others like it) were created to allow easier shorting of gold for suppression reasons, not withstanding the recent highs.

People who point to the recent highs to supposedly "debunk" the idea that gold is suppressed don't consider where the gold price (IMHO) should be absent manipulation.

Just something to chew on.

chumbawamba's picture

Hey CD.

Math is math.  If it wasn't for GLD and SLV, which re-direct interest in PM investing into hollow paper vehicles, the POG/POS would already be 1000% higher than they are now.  The ETFs are simply there to extend time on the fiat money scam.  Nothing more, nothing less.


Buy physical, damn it.

I am Chumbawamba.

Cognitive Dissonance's picture

I agree with you Chumbawamba, I hold nothing but physical PM's.

I was playing around with ideas to get a response to see what the ZH world is thinking. I do think the etf is an effort to keep the manipulation going, particularly after I spent a long winter evening in 2006 reading the prospectus, which I read again every time they update it. Lot's of "will" words but very few "shall" in there. Big world of difference between those two terms.

There is a lot of discussion on ZH about whether or not Gold is manipulated but not a lot of talk as to how.

lookma's picture

I do think the etf is an effort to keep the manipulation going

I think it is a key part of manipulation.  From FOFOA:

Why More Buying means Lower Prices! (in paper markets)

In the leveraged market of paper gold, the more buyers that show up, the lower the price will go. Here is how it works. Let us say that we want to play on the front lines of gold price discovery; the futures market. We believe fundamentally that the price of gold must rise, so we become buyers of future gold. But let's say that we only have $5,000 to play with. So we pay our $5,000 margin to gain control of a $100,000 contract for 100 ounces of gold. If gold goes up $50/ounce while we hold this contract for future delivery, we will make $50 x our 100 ounces, or $5,000. A $50 rise in gold only represents a 5% increase, but our profit was 100%! We doubled our $5,000 turning it into $10,000!

Here's the problem. We don't have enough money to pay $95,000 more for the physical gold. And the bullion banks KNOW this. They know that there is a 90% probability that we will not take delivery. So when we placed our bid for 100 ounces of gold, they simply issued a brand new paper contract, not backed by real gold! This is pure paper gold inflation. And the more contracts there are, the lower the value of each contract. The same way supplying more dollars makes the value of each dollar fall. It really is the same thing!

This is how a million new paper gold buyers, or ETF subscribers can actually make the price of gold FALL! All the fresh demand is met immediately with fresh supply, inflation in the paper gold market. This increases the supply that is visible to new bidders, lowering the value of each unit.

Only the buying of physical gold, taking it into your possession, puts upward pressure on the price. All other buying puts net downward pressure!

The last 20 year record of gold prices clearly shows a gradual shift from the total confidence in the paper contract market of the early 90's (contracts were "as good as gold"), to the massive inflation of the paper gold market in the late 90's (falling price), to the gradual shift from paper to physical of the last 8 years (rising price), starting from the top (the "giants") and trickling on down to you and me, J6P.

andyupnorth's picture

I have expenses and bills to pay.  I need cash now.  So I buy GLD Options in order to make the fiat money necessary to buy things now and pay off debt now.  But I would NEVER buy and hold GLD.  I don't believe that it has any long term value/storage of wealth. 

Daedal's picture

Gordon Gekko posted a fascinating article on the GLD ETF. I believe similar postings were already featured here about the discrepancies in the SLV ETF. I used to hold both, but new information has come to light, man. Daedal abides.

Careless Whisper's picture

I am onboard with GG and Chumba. You gotta take posession the physical asset. Oh, and how IRONIC is it that John Paulson is taking advice from that fi dolla ho Alan Greenspan?

Apocalypse Now's picture

The GLD ETF came out shortly after the hushed news story regarding China finding tungsten gold bars (gold bars with a tungsten core).

If you read the prospectus, it clearly states the bars may not be up to london delivery standards - this fits a tungsten bar.

The ETF was most likely started to use those defect bars in some "productive" manner.

Go with physical and mining shares.

Anonymous's picture

The GLD ETF came out shortly after the Rothschild's withdrew from the LBMA.

Anonymous's picture

At that time, one was wondering why Rothschild withdrew from the LBMA, even now, no answer. They traded gold market for a couple of centuries in Europe.

Unscarred's picture

Houston, we have liftoff...  Approaching gold $2,000 and beyond.

geopol's picture

Everybody!!!Get all the FRN's you can and immerse gold and silver,,, It's beginning to get crowded by the MSM types...Mining pulls are way down, supply could reach irreversible  drought very soon,,get in now..

Anonymous's picture

While I think it's best to not become iconoclastic about which forms of gold investment one should prefer, it does makes sense to consider the fact that only investment in gold and silver bullion is "off-grid" and the very purpose of bullion investment in a time of price and systemic and currency and policy chaos, is in fact to be off grid.

I'll guess that Australian and Canadian banks will do a big business in the next few years, taking in deposits and then offering gold and silver bullion storage off-site.

ghostfaceinvestah's picture

Canadian banks are awesome, they will sell you gold bars over the counter at close to spot.  Love em.

RowdyRoddyPiper's picture

You are the first to ever say anything nice about these fucking parasites. The canadian banking system is an oligopoly that detests competition. The banks have bought all the trust companies, major brokerage firms and now what to sell insurance.

Bastards.  They do have nice dividends though...

Anonymous's picture

I bought from Scotiabank recently. They took 6% over spot, and that includes the conversion from CAD to USD (they only sell gold in USD). Still hurts but I was expecting to pay more when I first had the idea to buy physical.

Anonymous's picture

Thats a pretty good deal esp with the fx.

Flyingtrader's picture

Captain of a sinking ship: "Ladies and Gentleman, there is no need to panic, the ship is fine. In fact there is evidence that our efforts at bailing are keeping us well above the waterline; we may even be rising.  Please do not read into the fact that I am currently sitting in a lifeboat with my water wings on.  This is merely a procedural thing and not necessarily indicative of impending disaster.  REMAIN CALM.

Guy Fawkes's picture

I'll remain skeptical on this one. John Paulson is not the kind of person to announce his move BEFORE he makes it. Why would he be saying I'm buying $250M in PM's a month before? ... So he can pay $2K oz?

Anonymous's picture

Why? If you are launching a new fund, it helps to state how big of a stake you intend to take yourself. Don't see why this is a mystery.


Assetman's picture

Exactly... I find the announcment and the timing thereof dubious, to say the least.

Anonymous's picture

He's humanitarian, wants the whole world to share in the riches.

R i g h t. And chickens have lips.

lookma's picture

Paulson & Co. already is a major holder of gold shares including AngloGold Ashanti Ltd. and Kinross Gold, doing most of its buying early this year. Mr. Paulson currently has more than 10% of his $30 billion or so under management in gold-related investments, according to his investors.

Mr. Paulson also owns billions of dollars of gold exchange-traded funds and forward contracts that he uses for gold-backed investor classes of his various funds. These gold investments have benefited from the recent surge in gold prices to nearly $1150 an ounce.


At Tuesday's investor meeting Mr. Paulson argued that the bull run was only beginning for gold; he said he was starting the new fund in part to give himself more personal exposure to gold. Mr. Paulson, who is estimated to be worth about $6 billion, said he would himself invest as much as $250 million in the new fund, according to an investor at the meeting.

FreddyInBangkok's picture

Paulson's absloutely right about that, only just beginning which is why I'm walking slowly, not running. Expect the gold cycle to run to 2014. If you're not in already wait for this rally to pull back a bit in the next few months. A dollar rally would be nice with a stock market crash. It'll come. TA types, take a look at the 10-2 yield curve compared to $XAU, $GOLD, $GOLD:$SILVER, $USD & $SPX long term (see '93 & '03). We should have a few more months of this then a pullback followed by a year or so sideways. Then a big push. Get positioned.

faustian bargain's picture

maybe he's just trying to hype up his fund...? i agree though, the announcement seems strange.

Anonymous's picture

He likely already owns gold, mucho, at 600 and finds tripling his money in one year by SELLING into the rise not a bad year's work.

Anonymous's picture

I totally agree. Why in the world would he pre-announce this unless he was unloading as he speaks.

gator gatlin's picture

Suppose, grasshopper, he is funding his $250MM investment with a previously acquired (at much lower basis) gold position and he is merely trying to leverage that by instigating more gold demand via the fund!

Anonymous's picture

He "pre-announced" that he would invest in his credit ops fund too, when that was launched. The fact that he discloses this to his clients is not strange or mystical in any way. He is required to do so by law as well. Enough with the conspiracy bullsh*t. Had he sent out a press release 6 months ago it would be a different story.


delacroix's picture

paulson will devise a way to use the fund investors money to profit, while insuring that if there are losses, they will be shouldered by the investors as well. if the fond is anything like an etf he doesn't have to hold physical gold. he can use the investor $ to speculate with. you know, pull a goldman.

Grand Supercycle's picture


But what happens when the USD rallies and the DOW tanks ?


BorisTheBlade's picture

You sound like you have an idea when the Fed will raise interest rates.

bokapita's picture

Short of nuclear war, the dollar will not rise unless interest rates rise. If so, the dollar will fall again pdq as the interest burden will mince the consumer and the Treasury. Gold does even better. When the Dow tanks, gold does even better.

The point to grasp is that gold is acting outside of the traditionally taught and accepted clever peoples framework. Gold is going higher because fundamental uncertainty has set in throughout society about the future value of paper any paper, not just currencies. Thus ideas of convertability, price, dolar-value become obsolete, just as diamonds and gold become obsolete to the person dying of thirst.

The gold price, therefore, reflects an atavistic certainty that the system is stuffed, it is being bought because people want some sort of an insurance policy for the future and nobody has thought of a better one. The higher the price goes, the less likely anyone is to sell the stuff because it confirms the opinion of imminent collapse is ever more widely shared.

Only if, not when, government finances and consumer finances return to sensible debt/deficit/expenditure ratios, will anyone rational sell their gold .

Assetman's picture

And this is exactly where the Paulson announcement makes sense.

If you're going to announce to the world that you are commited to create a fund that will make $250mm in incremental investments in gold-realted entities sometime in the future (and importantly, not today), you expect Mr. Paulson anticipates an opportunity to accumulate gold at much lower prices.

The Fed doesn't need to raise interest rates to induce panic and start a "safety trade".  All they need to do is to execute The Plan.  That involves winding down existing loan facilities, completing MBS and Agency debt purchasing programs, and marginally withdrawing reserves from the cash hoarding banks.  They don't even need to remove reserves, as the risk premia from "no more buying junk" will bounce like Happy Fun Ball.

Once the Fed succeeds in scaring the masses witless (while helping Treasury folk in securing massive 30 year debt issuance), they can eventually return back to creating new programs to purchase even more worthless debt.

During that time, of course, both gold and the equity markets will be vulnerable-- and the DXY will gain strength much like the way it did between July 2008 and March 2009.

In other words, I think many investors are being set up by the same entities that engineered the equity rally to start with.  And right now, they are trying to stuff as many of us on the wrong side of these trades as is humanly possible.

I do realize the other side of the argument-- that the Fed is so blind and committed to printing at all costs, that they could care less about the dollar being cut in half.

chumbawamba's picture

You seem to believe that these guys can walk on water.  The reason gold is shooting higher nearly everyday is because sane people have figured out that these guys are in-sane.  The system can't be fixed.  It's irreperably broken.  Not only that, it's defunct.  Load it into the trailer and haul it to the junkyard.  Salvage what you can from it and start over.

I am Chumbawamba.

Assetman's picture

No Chumba... I agree exactly the opposite.  The Fed has went down a road of no return in this initial bailout-- and it has already proven to be the wrong road.  The only thing they can effectively do now is to buy time-- that is something that the political and financial elites need in a big way right now.

I'll put it another way-- I am a huge gold bug.  I bought a lot in Fall 2008 timeframe, when gold was < $800 an ounce, and most were buying their Treasury notes and praising "cash is king".  And I'll certainly be buying gold again. 

As with greed, though, fear is a very powerful thing-- and I think the Fed is moving toward scaring the investing world $h1tle$$ by playing chicken with the dollar and reversing its course as planned.  Ben Bernanke is nuts for doing this... the purpose in doing so is to eventually herd the masses into Treasuries where new issances are mounting big time for next year.  Someone has to finance this massive Federal deficit, and it will eventually be handed to the "greater fools".  It won't be me.  But it will be someone, and at really low coupon rates.

One other note-- I would listed to Chumba very carefully on how to purchase gold.  Going the ETF route is a big mistake, in my opinion, and having physical on hand should be part of the gameplan.  Storing some outside the boarder makes intuitive sense, but one must assume (a) the "contract" to deliver will be upheld; and (b) you have the ability to travel to the storage destination (i.e., London, Switzerland) if required.

_Biggs_'s picture

I personally agree with the former scenario you laid out.  The tools are still in place for the Powers to agressively move the markets down, uninhibited.

Anonymous's picture

That is the only explanation that makes any sense to me. Nobody trying to make money is pallet-sized loads is going to tell you what they are really doing. It's a chess game, after all. The Fed is not blind--the G20 figured this all out ahead of time. The big boys are doing exactly what they did with oil in '08.

JacksWastedLife's picture

Yeah. Gold today is probably what oil was in '08.

Doc's picture

You are missing the point. The Fed HAS to cause inflation. That is the plan. A debtor's nightmare is a deflationary environment it raises the real cost of the debt burder.

The US owes so much money on every level, federal, state, municipal, corporate, personal it is absolutely ludicrous. There is no other choice but to inflate away.

However, Bernanke, Hank Paulson, Geitner, Obama etc. can't come out and say "oh and the plan is to cause a good 20% inflation in order to wipe out the real debt levels. Gold would go to 5K the next day, oil would trade at $500 a barrel.

So just like with every other political move out there that we've heard "there's WMD in Iraq", "Subprime is contained", "the financial system is strong", "change and hope" they claim a "strong dollar" policy is what they're looking for.

The Fed and the government sent out the message six months ago DON'T HOLD CASH, buy anything equities, commodities, houses, whatever, but DO NOT HOLD CASH. That is what 0% interest rates do. What's the difference between putting my money in gold versus giving it to some of the most bankrupt and badly run banks in the world such as BofA, Citigroup etc. so that I get less than 1% on a deposit?

The only questions that remain are when will we have inflation and how high will it be, not if.