Hedge funds slash bullish wagers on gold over Trump election win
The precious metal has fallen about 8% from a record high on Oct. 31, with losses accelerating after Trump’s election victory last week.
Beaten up bullion investor, John Paulson, logged an 18% drop in his Gold Fund last month triggered by the ongoing slump in gold prices, and is now down 26% YTD, reports Bloomberg.
Even though gold has fallen for five straight months —its longest slump in 16 years— the precious metal is up 70% since Paulson turned bullish in the spring of 2009. Then why has the hedge-fund manager’s dedicated gold fund suffered double digit losses?
A few investors, such as the Societe Generale’s Lyxor platform, have abandoned the gold fund due to poor returns and scarce interest among their own clients. But Paulson’s gold thesis followers, said sources quoted by Here is The City, have even threatened to pull their money if the billionaire backs away from it.
According to the newspaper’s informants the Lyxor account only amounted to about $15 million.
Despite the $900 million fund mounting losses –it declined 25% last year—Paulson is sticking with its strategy.
He believes that in a world of quantitative easing, the shiny yellow metal benefits from central banks printing money that is distributed throughout the economy. Cash could take multiple years to circulate, Paulson acknowledges, but once it does, the resultant inflation will buoy the price of gold.
“We believe in the long-term outlook for these positions as QE programs continue around the world,” Paulson wrote to clients.
The hedge-fund manager introduced his gold thesis in April 2009, right after the Federal Reserve, the gatekeeper of the U.S. economy, announced plans to add $1 trillion to the financial system by purchasing longer-dated Treasury bonds and mortgage-backed securities. Gold was trading at less than $1,000 at the time.
Paulson made billions betting on the sub-prime mortgage crisis and in 2010 had a record pay day of $5 billion.
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