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Hedge Fund Gurus Split on Gold’s Future

Following the 'smart' money can be tough


It takes a long time to analyze an investment.  So why not copy the picks from the world’s best money managers?  In fact, this is fairly easy to do since the Securities and Exchange Commission mandated the disclosure of portfolios of big hedge fund operators.

But what happens if two renowned investors are in disagreement?  That’s a tough call. You might have to do your own analysis, right?

Let’s take an example: gold.  Over the past few years, several top money managers have been long on the precious metal, and it has made them even richer.

But recently, one of those bulls — George Soros – dumped a substantial amount of his gold holdings, which was mostly in the SPDR Gold Shares (NYSE:GLD) exchange-traded fund.  Needless to say, it garnered lots of headlines. 

Also, amid a broad commodity selloff last week, gold prices fell about 5%. Could this be the sign that gold has peaked?

The fact is that Soros has made some gutsy calls over the years.  In 1992, he shorted the British pound as he “went for the jugular.”  He ended up with a $1.1 billion profit.

In the case of gold, it seems that Soros believes that it’s in a classic bubble, with the main driver being cheap credit.  Simply put, now it is time to reap the profits.

Yet there is another bet-the-ranch billionaire investor, John Paulson, who is still a gold bull.  He is someone who is known to engage in mind-numbing analysis, which definitely worked in 2007, when he went short on subprime derivatives.  He snagged $4 billion.

As for his substantial position in gold — as well as gold miners — he thinks the price will reach $4,000 over the next three to five years. 

How can he come up with such a scenario?  It’s a global perspective.  Paulson thinks that the Federal Reserve has flooded the world with too many dollars, which will ultimately lead to higher inflation.  Already there is evidence of this in countries like China, India and Brazil.

But won’t these countries – as well as the US — fight it with tighter money policies?  Actually, this is happening now.  But once inflation gets momentum, it is extremely hard to fight.  And there are trillions of dollars sloshing around the globe.

Besides, emerging countries have to weigh inflation against the needs to grow their economies.  And it seems logical that the bias will be for growth.  After all, hasn’t this been the case for the past 20 years?

Tom Taulli’s latest book is “All About Short Selling” and his Twitter account is @ttaulli.  He does not own a position in any of the stocks named here.

Article printed from InvestorPlace Media,

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