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John Paulson Loses Over $300 Million On Friday's Gold Tumble

Submitted by Tyler Durden on 04/13/2013 18:11 -0400

There were many casualties following Friday's 4% gold rout, but none were hurt more than one-time hedge fund idol John Paulson, who according to estimates, lost more than $300 million of his own money in one day.

Per Bloomberg: "Paulson has roughly $9.5 billion invested across his hedge funds, of which about 85 percent is invested in gold share classes. Gold dropped 4.1 percent today, shaving about $328 million from his net worth on this bet alone." This is merely the latest insult to what has otherwise been a 3 year-long injury for Paulson and his few remaining investors, whose very inappropriately named Advantage Plus is among the bottom 10 hedge funds for the third year in a row. Yet despite being a one-hit wonder thanks to one lucrative idea (long ABX CDS) generated by one of his former employees (Pelegrini), Paulson still has been lucky enough to somehow amass a $10 billion personal fortune which can have a $300 million downswing in one day, even if it is in an asset class which eventually will go only one way - up. Unless, of course, like so many other fly by night billionaires, Paulson too hasn't somehow managed to lever up all his equity into numerous other downstream ventures, and where a $300 million blow up leads to margin calls and other terminal liquidity outcomes.

“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 e-mailed statement. “We started investing in gold at $900 in April 2009 and while it’s down from its peak to $1500, 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 losses from bullion’s decline, investors in Paulson & Co. funds, including the firm’s founder, lost about $62 million today on their gold-stock investments, based on holdings as of Dec. 31, 2012. New York-based Paulson & Co.’s biggest wagers in miners include a 7.35 percent stake in AngloGold Ashanti Ltd.

Paulson’s Reade said gold will continue to appreciate in the long run because governments are pumping money into the economy at a rate not seen before.

“Federal governments have been printing money at an unprecedented rate,” said Reade. “We expect the strengthening of the economy and stock market to cause money supply to rise more than real growth and eventually lead to inflation. It is this expectation of paper currency debasement which makes gold an attractive long-term investment for us.”

That said, one doesn't have to be a bull in gold and gold equities to position appropriately for the eventual inflationary outcome, whose arrival is only a matter of time now that not one but two central banks are injecting $80+ billion in fresh liquidity into the global markets every month.

Recall that gold bull Hugh Hendry said in October that while he is long gold, he is short gold equities, a trade which has generated substantial alpha, courtesy of the 40% plunge in GDX and associated gold miners (a pair trade we have supported incidentally), and one which may well continue generating additional returns should Japanese financial institutions be forced to continue selling off the yellow metal on margin concerns, due to the record surge in JGB volatility as we explained yesterday.

As for gold as an inflation hedge, here Paulson is certainly correct. The only question is when will the price suppression scheme of gold as an alternative currency finally end. Since various official organizations (such as the Troika) are currently doing all they can to buy the sovereign gold of insolvent nations at firesale prices, it is likely that the period of artificially suppressed prices may continue.

Which, incidentally, for all those who lament the recent price drop in gold, is a good thing: for those who see gold as an alternative currency to fiat, all the recent sell off (as well as alleged or real downward price manipulation) does is provide a lower cost basis for accumulating hard monetary assets. Which is something to be welcomed and not mourned, especially if one plans on holding on to said gold (or silver) as a currency, instead of merely converting it back into fiat at a higher price point, and thus as an asset (something all those who bought BitCoin at $260 and sold at $50 appear to have completely forgotten).

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Sun, 04/14/2013 - 02:15 | 3446056 MFLTucson

This was 100% orchatrated by Ben Shalom Bernanke the con man of the west. http://goldtrends.net/FreeDailyBlog?mode=PostView&bmi=1267250

Sun, 04/14/2013 - 02:17 | 3446058 Kina

The SOBs locked out the physical buyers of gold on Friday in London to prevent them from taking advantage of the fire sale and deny their support of the price. Friday was a total market hatchet job. A planned take down. I want heads to roll. This crap market rigging has to stop. Read this. Make sure no sharp object near by. <br /><br />http://goldtrends.net/FreeDailyBlog?mode=PostView&bmi=1267250

Well if this is accurate, that they can simply lock out buyers (or sellers) at will with zero recourse or consequence it means trading on the COMEX is simply suicide.

It isn't a market, there is no physical gold or silver to bought, it is a total sham with a single purpose...express the will of the Fed.

This is getting close to the Fed coming out and declaring on a weekly basis the price of Gold/Silver...and that they will corrupt the market in any manner neccessary to achieve it.

Time to enitrely abandon the COMEX as a price setting mechanism and as a source of real gold or silver of which there is none.

Players wanting to trade real gold and silver should go eleswhere and ignore the COMEX it is irrelevant, it setting the price of nothing.

If I were a gold or silver miner I wouldn't be selling future stock at any price related to the COMEX.

Sun, 04/14/2013 - 02:59 | 3446075 Oligarch

I believe that gold might be the ultimate bubble. Its not used as a currency, we are not going back to a gold standard and gold is not a safe haven in deflationary times. The Gold bugs argument is that gold is a safe haven and that it is a great inflation hedge. It's correct that its is a great inflation hedge, but we are not going to hyperinflation.

No signs of extra ordinary inflation despite all this money "printing". The truth is that we are deflating at a rapid pace but very few notice due to the massive ammounts of "printing". When the creation of new money at this speed will stop, people will start notice.

But shorting gold is not reccomended because the gold bugs could be right, and if people lose faith in fiat it will be a good thing to own ... :)

Sun, 04/14/2013 - 03:21 | 3446084 ozzz169

Wrong... Gold is very liquid and can be bought or sold around the world. It is the ONLY alternative sudo currency to government backed currencies. but gold is bubbly (far outpacing inflation in recent years) I have commented many times here why, can find any of them..

But it will be a long long time till the US see high inflation or hyperinflation. physical dollars is probably the best play, with some gold just in case, and guns and ammo (the ultimate currency of last resort)..

Sun, 04/14/2013 - 05:59 | 3446147 The Abstraction...

There is a reason some of us have all our money in silver and none in gold. The electronic price of silver has fallen $4-5 an ounce in a few months, but the physical price is largely unchanged.

Sun, 04/14/2013 - 03:11 | 3446077 ozzz169

Physical coins still less then 3% over spot, people dont understand debt and leverage and inflation. There has been a bubble in gold for long time, it can go down a lot if there is a recession which its looking likely there will be, I will pick more up on the cheap. last batch I picked up was at 800, silver @ 10, and platinum at 1000. gold probably could run down to 1000 or so on a global slow down, then I will pick up some more. Its going to be a LONG LONG time till the high inflation hits the dollar. The advantage of being the biggest and best of the worst.

What people need to get is that the majority of printing has gone to shoring up banks balance sheets because they were mostly insolvent and the fed bought all their bad assests to make them solvent, so basically the feds balance sheet is full of deflated assests, that have already lost most their value, and have not created real money, as the banks can not use this money because they need it on the balance sheet to be solvent.

if banks were very levered with AAA MBS that were not worth anything, and lost a few trillion, how much inflation do you think the fed printing a couple trillion will cause? (NONE) its basic math. not to mention all the zero interest loans the banks got from the fed to stay solvent, that they still have to pay back.....

Sun, 04/14/2013 - 09:16 | 3446289 Manipuflation

"Physical coins still less then 3% over spot"

Sorry, but I will have to minus you for that silly statement.(only my third red vote on ZH ever) 3% over what? Bullshit. What are you buying?

Sun, 04/14/2013 - 10:10 | 3446333 JonNadler

the troll just multiply when gold goes down, it's natural

Sun, 04/14/2013 - 03:15 | 3446083 DumbJim

I am smarter than you dumb Zerohedges. I sold all my gold and fiat currency and bought the only true store of wealth: BitCons! Mwahahahah.

Sun, 04/14/2013 - 05:56 | 3446143 The Abstraction...

Well if you paid less than 90 euro a btc, you still have time to sell them AND make a profit.

Sun, 04/14/2013 - 04:55 | 3446112 sockratte

85% of investments in gold? mr. paulson seems to be a very smart investor. -.-

Sun, 04/14/2013 - 05:02 | 3446116 falak pema

gold bugs love to dance the jitter bug!

Pity Dr Krug dances so badly.

Sun, 04/14/2013 - 05:57 | 3446146 Byte Me

300MM "loss" on a 10 Bil pot?

Pfft..

It's all relative. Sure, it soundslike a lot to we mere mortals, but it's equivalent to a move of $300 on a 10,000 account.

Get over it and move on. All relative...

Sun, 04/14/2013 - 06:27 | 3446170 RideTheWalrus

I'd be slightly annoyed if i had a $1,000 and lost $30 too.

I feel ya burn Paulson, i feel it!

Sun, 04/14/2013 - 07:58 | 3446211 Mr. Hudson

Here is the real reason gold crashed.

http://www.livescience.com/28676-plants-grow-gold.html

Sun, 04/14/2013 - 08:12 | 3446225 EclecticParrot

Elephants don't concern themselves when a gnat takes a little bite -- they just swish their tails even faster and plod on, as smelly as ever.

Consistently amazed, and somewhat disheartened, that the topic of gold continues to elicit the largest # of responses on this and other financial sites. (Yawn). Then again, I can't understand why Star Trek Next Gen fascinates intelligent adults, many who've never heard a note of Debussy. Together, this perhaps says something about both the level of paranoia and lack of imagination of modern society. Silly me, I've always thought of gold as a symptom.

Sun, 04/14/2013 - 08:58 | 3446271 Manipuflation

"Consistently amazed, and somewhat disheartened, that the topic of gold continues to elicit the largest # of responses on this and other financial sites. (Yawn)."

Yawn? Really? It sure seems like you give a shit if you bothered to post. State your issues and concerns with gold. State your alternative options to gold. I am unclear as to where you were headed with the Debussy comment BTW.(???)

Mon, 04/15/2013 - 08:19 | 3449047 EclecticParrot

Others have stated their concerns ad nauseum --that is, when they can get a word in edgewise amongst 87 counter-posts from gold bugs, repleat with Pavlovian down arrows (though we're seeing down arrows of a different sort this morning, aren't we?) -- I prefer to make it more personal :)

Star Trek vs. Debussy, gold vs. Cash -- the age-old debate continues. One set involves shiny objects (tin foil hats, doubloons, Voyager models), the other creativity, confidence vs. hysteria, and underrated complexity (complexity stemming from the constant search to re-deploy strategically, vs. gold owners who only want to acquire and hoard more.)

Hint: don't buy and fondle something touted hourly in ads on Fox News. Even as an avowed Conservative, it's clear their targeted audience is less educated than MSNBC (which is not to say their viewers are less educated, I'm talking about the chosen programmming style). To lambast the stock bubble while ignoring the gold bubble is shortsighted. Gold-buying sends no message to Bernanke, makes no political statement. It's a religion, a cult and, as such, is an opiate, tragically addictive.

Mon, 04/15/2013 - 14:38 | 3451533 Ckierst1

EP is dazzling us pedestrian dweebs with his brilliance and good taste. Us unwashed types need to be schooled. Noblesse oblige you know. Thank yew! Thank yew, Oh Great One!

Sun, 04/14/2013 - 08:10 | 3446226 zipit

How much pain can he stand before he capitulates? Maybe will be another Julian Robertson / Tiger Fund situation. Where he was right, but early. And capitulated and closed up shop (or was "forced" to) just before the dawn. Anyway, I am standing by to back up the truck (a Matchbox-sized truck, but anyway) when Paulson finally throws in the towel.

Sun, 04/14/2013 - 11:03 | 3446446 WTF2