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updated: 4/13/2013 8:36 PM

Billionaire Paulson loses more than $300 million as gold slumps

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  • Two one kilogram gold bars sit with a 500 gram gold bar at London bullion dealers Gold Investments Ltd. in this file photograph.

      Two one kilogram gold bars sit with a 500 gram gold bar at London bullion dealers Gold Investments Ltd. in this file photograph.
    Bloomberg News

 
By Katherine Burton/Bloomberg News

Billionaire John Paulson lost more than $300 million of his personal wealth on his gold bet, as the precious metal fell to its lowest price in almost two years.

Paulson has roughly $9.5 billion invested across his hedge funds, of which about 85 percent is invested in gold share classes. Gold dropped 4.1 percent yesterday, shaving about $328 million from his net worth on this bet alone.

Gold tumbled and entered a bear market after falling more than 20 percent since August 2011, bringing more bad news for 57-year-old Paulson, who has struggled with poor returns for the past two years. He told investors last year that his $700 million Gold Fund would beat his other strategies over five years because the metal was the best hedge against inflation and currency debasement as countries pump money into their economies. The fund slumped 28 percent this year through March, a person familiar with the matter said this month.

"The recent decline in gold prices has not changed our long-term thesis," John Reade, a partner and gold strategist at Paulson & Co., said in an e-mailed statement. "We started investing in gold at $900 in April 2009 and while it's down from its peak to $1500, it's up considerably from our cost."

Paulson investors can choose between dollar-and gold- denominated versions for most of the firm's funds. In addition to losses from bullion's decline, investors in Paulson & Co. funds, including the firm's founder, lost about $62 million yesterday on their gold-stock investments, based on holdings as of Dec. 31, 2012. New York-based Paulson & Co.'s biggest wagers in miners include a 7.35 percent stake in AngloGold Ashanti Ltd.

Goldman Sachs Group Inc. said this week that the turn in the gold-price cycle is accelerating after a 12-year rally as the recovery in the U.S. economy gains momentum. The bank reduced forecasts for the metal through 2014.

Deutsche Bank AG cut its 2013 gold outlook this week by 12 percent, citing a strengthening dollar and a lack of haven buying, and Societe Generale SA said in an April 2 report that gold is in a "bubble."

Paulson's Reade said gold will continue to appreciate in the long run because governments are pumping money into the economy at a rate not seen before.

"Federal governments have been printing money at an unprecedented rate," said Reade. "We expect the strengthening of the economy and stock market to cause money supply to rise more than real growth and eventually lead to inflation. It is this expectation of paper currency debasement which makes gold an attractive long-term investment for us."

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