The MacroTourist is still on vacation, but I couldn’t help but write a quick post about a recent development.
Back in the heydays of the credit crisis of 2008, money manager John Paulson was elevated to the status of hedge fund God when he nailed the sub prime debacle. All of a sudden this previously relatively unknown hedge fund manager became the go-to guru when it came to the markets. Eager to piggy back on the success of this new diety, many hedge funds piled into Paulson’s next “big” idea.
With a fervour that made Charlie Sheen’s post rehab benders look tame, hedge funds hoovered up as much gold as they could find. Paulson had been going around making presentations about the coming explosion higher in the price of gold. He even went as far as creating a fund that was priced in gold. After the 2008/9 credit crisis, a lot of hedge funds became enamoured with the little yella’ fella, but it is safe to say that Paulson was at the forefront of this gold infactuation.
When gold rolled over, Paulson did not waver. He hung tough, confident that the price would surely return to its old highs. When other hedge funds started bailing, Paulson simply bought more. He did not seem detered by the monstrous price drop.
Even as the bear market dragged on, Paulson refused to budge.
Now four years into one of the ugliest declines in gold’s history, Paulson has announced that he has recently changed his tune:
(Bloomberg) — Billionaire hedge-fund manager John Paulson, once one of the best known gold bulls, cut his bullion holdings for the first time in two years.
Paulson & Co.. reduced its stake in the SPDR Gold Trust, the world’s biggest bullion exchange-traded product, by almost 10 percent last quarter, a U.S.. government filing showed Friday.. The move came after the firm kept its holdings unchanged for seven straight quarters.
The news is another blow to gold bulls as prices languish near a five-year low.. Speculators have stayed bearish on futures after turning net-short in July for the first time in U.S.. government records going back to 2006.. The prospect for higher U.S.. interest rates has prompted most investors to snub precious metals, since they doesn’t pay interest, unlike competing assets.
“Gold will remain out of favor because investors are expecting the rate hike very soon,” Scott Gardner, who helps manage $450 million at Verdmont Capital SA in Panama City, said in a telephone interview.. “It has also become clear that gold has lost its prominence as a safe-haven investment.”
Not only that, but his outlook for gold has changed from a potentially explosive move higher to “fairly valued”:
“I think gold is fairly valued today,” Paulson said in an interview, adding that the market was starting to balance.
And the greatest part of this interview was the new replacement for his gold holdings:
“We have almost nothing in metals and very little in gold,” Paulson said, adding that healthcare and pharmaceuticals stocks are the firm’s biggest holdings now.
So let me get this straight… After lugging around gold since $1900 and refusing to give up on it, some $800 lower Paulson has now decided that gold is “fairly valued” and has sold his gold to buy drug companies?
To make the picture even clearer, guess who is buying Paulson’s gold?
…following Friday’s filing by the Duquesne Family Office, we learned that as of the end of Q2, the largest position for Stanley Druckenmiller was none other than gold, following the purchase of 2.9 million shares of the GLD ETF shares. In other words, as of this moment, gold amount to over 20% of Druckenmiller’s total holdings.
Druck has pulled out the blue tickets and loaded up the boat on our precious little yellow friend.
I will leave it to you to decide which “guru” hedge fund manager you want to tag along with… The one who owned gold for the past four years and has now decided it might not be going up anytime soon (and has put his money into drug stocks), or the one who has quietly decided to fade the universal hedge fund bearishness on gold…