How John Paulson Lost $630 Million

UPDATE: Including the 6/20 sell-off, Paulson’s GLD position has lost more than $800 million as GLD sank well below $125.

It has been a rough couple of months for gold bugs. With the precious metal slowly declining in price since the start of 2013, April’s nose dive has driven many investors out of the commodity once considered a “safe haven.” Down nearly 17% this year and almost 30% from September 2011 highs, the best years of gold investing seem behind us. What was once thought of as a darling of the commodity space is now an asset that has destroyed a number of portfolios in recent years, and even fooled a few famous traders [for more commodity news and analysis subscribe to our free newsletter].

Hedge Funds Throwing in the Towel

While many gold-heavy portfolios took huge losses in April, the U.S. economy has continued to pick up steam. This has prompted many hedge funds to cut their losses on the precious metal and look for greener fields. According to an article on Bloomberg, by the end of spring, ”funds and other large speculators lowered their net-long position by 4.1 percent to 54,779 futures and options” as a part of a mass exodus from the spiraling commodity. But one trader, who has long been a gold bull, has been hit especially hard.

Paulson Hit Hard

GoldRight after the gold crash, hedge fund manager John Paulson had a particularly rough time explaining his losses. The legendary investor, who made a big increase in his gold position late last year, held 21.8 million shares of the SPDR Gold Trust (GLD) in August 2012. This position alone made up approximately 44% of his company’s assets.

At that time, gold was around $1,600/ounce and GLD was around $160. In April alone, Paulson saw $300 million disappear from his fund in just a few days, as gold took a steep nosedive. Now, the precious metal is hovering around $1,375/ounce with GLD at $132. Since making the jump to hold nearly 22 million shares of GLD late last year, Paulson’s position in the gold ETF has been subjected to losses of $630 million. To the surprise of many, Paulson has stated that he will not be closing his gold fund, as he still sees a viable upside for gold over the long term [also see Jim Rogers: The Gold Correction Is Not Over].

Gold Outlook Bleak

There are still gold investors out there preaching the strength and security of this commodity, but the near term future is looking pretty bleak. Goldman Sachs Group, which was one of the first to announce their plan to short gold just before the price drop, has said that “gold will continue to slide over the medium term on a “re-acceleration” in U.S. growth.” With an improving economy and Fed asset purchasing expected to taper off soon, the short-term future for the metal is plagued with uncertainty.

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Disclosure: No positions at time of writing.

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The Art&Science of Trading Gold
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