Time To Follow The Top Hedge Funds And Buy Gold?

Date: Wednesday, May 20, 2009
Author: Peter Cooper, GoldSeek.com

So the two top holders of the gold ETF are revealed as hedge funds in their first quarter regulatory filings.

 

Paulson & Co, whose founder was the highest paid fund manager in 2007 thanks to a well-timed bet against sub-prime mortgages, bought 31.5 million shares in GLD, the gold exchange traded fund, in Q1. Meanwhile, Lone Pine was not far behind with its purchase of 26.5 million shares.

 

But Paulson has also acquired stock in AngloGold Ashanti to the tune of a cool $1.3 billion. The man who called the US housing market correctly is clearly hoping to do exactly the same with the gold market, and for the record he achieved a double-digit gain in 2008, along with a few stars like George Soros while the average hedge fund loss was 19 per cent.

 

Follow the stars

 

Is this hedge fund star on to another winner, or will commodity price deflation send this good fortune into reverse? Former performance is no guarantee of future performance but it is often the best guide we have.

 

In 2007 few called the US housing market turn, and yet with hindsight this was a bubble that ought to have been obvious. Could we not say the same now of the bubble in US bonds? Interest rates are too low, and the inflation risk too high.

 

Next boom asset class

 

Therefore the cleverest hedge fund manager is going to be the one with the largest exposure to the next boom asset class. For once the bond market breaks where will the money go? Straight back into equities with company profits now facing a long recession and slow recovery?

 

Surely gold also offers a hedge against deflation or inflation. If the printing of money creates an inflation then gold benefits as a currency with a fixed supply. If the recession deepens into deflation then gold will again prove its worth as a currency that rises in purchasing power.

 

Moreover, if equity markets tank then investors suddenly face an acute dilemma if the bond market no longer looks an alternative true safe haven. Then gold, gold stocks and the poor relation silver will be the place to go. And since when did following the smart money prove a dumb option?

-- Posted Tuesday, 19 May 2009 | Digg This Article | Source: GoldSeek.com Previous Articles by Peter Cooper
About Peter Cooper:
Oxford University educated financial journalist Peter Cooper found himself made redundant by Emap plc in London in the mid-1990s and decided to rebuild his career in Dubai as launch editor of the pioneering magazine Gulf Business. He returned briefly to London in 1999 to complete his first book, a history of the Bovis construction group.

Then in 2000 he went back to Dubai to become an Internet entrepreneur, just as the dot-com market crashed. But he stumbled across the opportunity to become a partner in www.ameinfo.com, which later became the Middle East's leading English language business news website.

Over the course of the next seven years he had a ringside seat as editor-in-chief writing about the remarkable transformation of Dubai into a global business and financial hub city. At the same time www.ameinfo.com prospered and was sold in 2006 to Emap plc for $27 million, completing the career circle back to where it began a decade earlier.

He remains a lively commentator and columnist as a freelance journalist based in Dubai and travels extensively each summer with his wife Svetlana. His financial blog www.arabianmoney.net is attracting increasing attention with its focus on investment in gold and silver as a means of prospering during a time of great consumer price inflation and asset price deflation.