Why John Paulson Still Believes In His Gold Bet

(July 17, 2013 - by REUTERS/Eduardo Munoz)

John Paulson was quick to mention that his firm’s struggling gold fund is only a modest 2% of his eponymous hedge fund firm’s total assets Wednesday, but even with the metal having an awful year the billionaire money manager still made the case to be bullish.

Paulson said at the CNBC/Institutional Investor Delivering Alpha conference in New York, "Although the Fed has printed a lot of money to date, there’s very little inflation. People who bought gold in anticipation of inflation have lost their patience," he said during a lunchtime question-and-answer session. "I would say that the rationale for owning gold has not gone away. The consequence of printing money over time will be inflation, it’s just difficult to predict when."

Paulson who moved into gold around the time Ben Bernanke and the Federal Reserve launched their first round of quantitative easing, says this year’s slide in gold — which plunged to the $1,200 level before a recent rebound — represents “a pause period in the trend,” but he thinks if the economy grows and indicators of inflation rise demand for the asset will increase again.

A number of high-profile investors have offered bullish views on gold in recent years as the metal streaked to record highs, including fellow hedge fund managers David Einhorn and George Soros, but none have been as closely associated with the investment as Paulson, in large part because he offered investors a share class that priced their holdings in his hedge fund in gold.

Paulson, who had a stake as large as 31.5 million shares (3.15 million ounces) in the SPDR Gold Trust (GLD) at one time — a position that was at 21.8 million (2.18 million ounces) at the close of the first quarter — has also poured assets into gold mining stocks that have also disappointed as the broader equity market surged to fresh highs this year.