Saturday, October 2, 2010

Über hedge fund billionaire Paulson envisages $2,400 - $4,000/oz gold

By Dorothy Kosich:

Billionaire John Paulson, whom the Financial Times considers the second most successful hedge fund manager ever, predicted recently that gold could hit $2,400 to $4,000 per ounce as double-digit inflation coming by 2012 kills the bond market and restores strength to gold.

Speaking before a SRO crowd at New York City's University Club, Paulson said 80% of his assets are in gold. His investment is spread out between ETFs, physical bullion and shares of gold mining stocks.

If his prediction proves correct, Paulson could become a contender for the richest man in the world, based on his gold holdings. He is believed to hold more gold bullion than several nations combined.

Among his gold equity holdings are AngloGold Ashanti, Barrick, Gold Fields, IAMGOLD, Kinross, NovaGold, Randgold Resources, and SPDR Gold Trust.

In his speech, Paulson noted that the price of gold has been highly correlated to the monetary base for as long as his firm has been tracking gold data. Given his expectation for further money printing by the Fed, Paulson predicted the price of gold could hit $2,400/oz based only on monetary expansion, and soar as high as $4,000 per ounce based on a projected overshoot.

One of the primary gold price catalysts has been Fed monetary policy. As proof of the validity of his forecast, Paulson observed that in 1980, the gold price rose by 100% more than the correction between the U.S., dollar and the gold price implied.

Low to negative real interest rates mean that the opportunity cost of holding gold is negligible, and during such times the gold price has made substantial gains. Until a decent rate of return on capital becomes evident, gold will experience a series of high highs and higher lows.

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