Paulson Making Gold Rush Self-Fulfilling Prophecy (GLD, KGC, AU)

A broker noted something about this yesterday as a gold bug, and frankly it seemed far-fetched considering the size of the move we have already seen in recent weeks and months.  But the talk was about John Paulson, the great bank and financial short seller who cleaned up betting against housing and financials, opening a gold fund.  We noticed he held some miners, but after the chase up in gold bullion prices this seemed and still seems late to the party even if there is room to run.  Today’s report from the Wall Street Journal shows that this may be more of a reality than a hope.

Paulson already has large stakes in key gold exposure with SPDR Gold Trust (NYSE: GLD), Kinross Gold Corporation (NYSE: KGC), and Anglogold Ashanti Ltd. (NYSE: AU).  The tally on these three positions alone at today’s closing bell was about $5.5 billion if the stakes have remained the same.  His stakes already listed are as follows:

• SPDR Gold Trust (NYSE: GLD) 31,500,000 shares, worth some $3.5 billion today if that stake is still the same.
• Kinross Gold Corporation (NYSE: KGC) 30,780,800 shares worth $589 million today if that is still the stake.
• Anglogold Ashanti Ltd. (NYSE: AU) 42,849,864 shares worth over $1.9 billion today if that is still the stake.

This seems the right move, but it also seems late for Paulson even if he is right about this just being the beginning for gold or its miners and producers.  He was so early in betting against US housing and financial institutions that he saw extraordinary gains.  With India creating that huge transaction and other recent moves, it seems that the gold trade is getting to become a self-fulfilling prophecy.   One of our affiliates, INO’s Adam Hewison, has been very bullish on gold as you can see in his November 4 audio-video presentation.

None of this is good for what it says about the value of those greenbacks in your wallet.  If the gold trade continues, the U.S. Dollar could be marginalized into becoming El Peso del Estados Unidos.

It will be interesting to see if Paulson will ever be able to make bets against gold in the fund.   Until his fund really does launch, we will still treat this as a rumor status.  Many things can happen over a period of six weeks or more.

JON C. OGG
NOVEMBER 17, 2009