NEW YORK (
TheStreet ) -- Legendary hedge fund manager
made some bad bets this year and
is paying the price.
According to Bloomberg, Paulson's main fund, Advantage Plus Fund, has sunk 44% for the year, dragged down by
Bank of America
. The big fear was that Paulson would be forced to sell good-performing assets like the
SPDR Gold Shares
to meet redemptions -- a fear that became a reality.
Reportedly, there was only 8% in redemptions requested of all the funds, according to Bloomberg, about $2.4 billion, but Paulson still dumped 11 million shares of gold, according to the latest 13F filings. He still owns 20.3 million shares.
Many experts have been worried of mass liquidation by Paulson and what that would do to investor psychology in the gold market.
Jon Nadler, senior analyst at Kitco.com, has warned of volatility in gold as "hot money" or hedge fund money comes out of the market, but he says that Paulson behaved exactly as he should have.
"It was to take advantage of probably the only profitable position he had in order to mitigate the damage from other decisions that were made in the portfolio. This is precisely why you keep a small cushion in gold in your own basket of assets. You then mobilize the gold when/if the time comes." Nadler is worried about a sizable chunk in a small market moving the price.
Scott Redler, chief strategic officer for T3Live.com, is more optimistic -- that Paulson's sale means that he is "out of the way ... now gold is acting much better." Redler says the technical levels of GLD look good and that the ETF could rally to $180. "It means there is less resistance, and it could be easier for gold to move to the upside.
Tony Rochte, managing director of State Streer Global Advisors, admits it's not great that Paulson sells, but "I would say there are just as many new investors learning about gold about gold as an asset class and accessing that market through the GLD."
In fact, the GLD currently holds 1,268 tons, which is relatively unchanged since the start of the second quarter. When investors sell -- and if there are no buyers -- then the GLD must sell some of its gold. If there is rampant demand, then the ETF has to buy bullion. Occasionally the fund must sell some gold to pay for expenses, but the fact that tonnage is relatively unchanged means that there have been enough buyers regardless of Paulson's offload.
Futures trader Anthony Neglia, president of Tower Trading, says that any Paulson sale was already factored into the market "that could have been the selloff to $1,535 ... I think that it's already known
that he would sell" and that it wouldn't come as a huge surprise. The gold price is currently holding around $1,781 an ounce, and Neglia said it was bullish that there was "no downward pressure to the gold price."
Paulson's decision to liquidate 35% of his gold position was more likely strategic than fundamental, which might soften the blow. Paulson has been quoted as calling for $2,400-$4,000 gold due to inflation, slow growth and a weak bond market. Paulson also still has heavy bets in gold stocks. He owns 36.7 million shares of
, 24.5 million shares of
, 5 million shares of
International Tower Hill
and 2.7 million shares of
Paulson also increased positions in
. Paulson also initiated a new position in the biggest gold miner in the world,
The other two physically backed gold ETFs,
ETFS Physical Swiss Gold
, which stores gold in Switzerland, and
iShares Gold Trust
, which is the cheapest gold ETF, saw solid buying.
added 240,520 shares to the IAU to stay the largest holder at 25.4 million shares.
Bank of America
was the biggest buyer with 6.8 million shares, while
sold a more modest 1.2 million shares.
Inflows and outflows in the SGOL were more modest, as it's a smaller vehicle, but the main banks like JPMorgan,
and Bank of America are all top 10 holders.
initiated a new position with 139,220 shares.
David Einhorn's Greenlight Capital initiated a position in
buying 1.4 million shares and George Soros added to his position in the GLD after dumping shares last quarter.
Written by Alix Steel in
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