Special Feature
He is effectively forced to explore market fundamentals and take outsized positions regarding his view on those scenarios. As we have found ourselves here at SBM this year with our long GBPAUD view and gold mining stock picks in recent months, sometimes being early is painful and it can take time for the market to focus on fundamentals when it’s suffering in an environment of extreme sentiment. Paulson is also re-learning this lesson and it remains to be seen if, indeed, his view on gold is actually correct. With regards to “macro” trading, however, this style does not result in frequent portfolio turnover and so it increases the informative value of 13-F fillings to us. Paulson’s top 10 holdings represented around $9.40 billion at the end of last year — 57% of the total $16.27 billion portfolio. This is meaningful concentration in Paulson’s portfolio. The exposure to SPDR Gold Trust alone was 21.7% and to Anglogold, a senior gold miner, 5.4%. This means that total exposure to gold across his funds on these two positions alone is more than 25%, and which indicates to us that Paulson has been indexing largely the value of the whole portfolio to the gold price. One helluva bet on the yellow metal.
PAULSON - PORTFOLIO The idea behind the accumulation of both physical gold and a spread of the gold miners that led Paulson to start building a position in the first quarter of 2009 is, in fact, very simple and does have a solid rational basis behind it. With the massive cash injections the US Federal Reserve and central banks around the world have embarked upon to give their respective economies a kick-start and continued support, inflation, it is reasoned, is expected to eventually pick up. So the theory goes that gold would be the best protection against resurgent rises in prices and/or monetary debasement in extremis, as investors tend to buy gold as a safeguard against inflation.
With the FED buying essentially every bond that the US Treasury issues, it seems that investors see limited risks in investing in the stock market and, with the record-low yields offered on bonds, they are being forced to seek out alternate assets in order to generate a positive return. The final result is evident in a bullish stock market environment.
Quantitative easing has certainly been inflating stock prices. At a time when growth still isn’t collective and sustaining amongst the world’s major economies, stock markets have powered on with the US actually carving out new record highs in recent months.
Investors are looking at the past twelve year bull run in gold and scratching their heads asking why would they hold the shiny metal instead of investing in the stock market? Particularly when equities have been delivering double digit returns these last few years.
20 | www.financial-spread-betting.com | May 2013
But, when it comes to inflation, the genie’s ugly head has still to rear itself. Prices in the UK are certainly edging higher at above 3% per year, but that’s not the case in the US, Europe or Japan and so gold’s supposed fundamental pillar as a hedge against inflation is not required, yet...