Out of near obscurity, hedge fund manager John Paulson has become an investment legend. In 2007, he shorted subprime securities and made a fortune. He now manages $37.5 billion and has a net worth of $16 billion.
Paulson likes to focus on major investment themes. Perhaps his most notable one right now is gold. He believes that over the next few years the world will see rising inflation and instability because of the Federal Reserve’s aggressive monetary policy. In fact, Paulson predicts that gold will reach $4,000 an ounce (it’s currently just under $1,500).
Even though other major investors are dumping their gold positions — such as George Soros — Paulson remains convinced he’s right. In his latest filings with the Securities and Exchange Commission, it shows that he has increased his holdings in the sector. As a sign of his bullishness, he even has equity funds that are denominated in gold.
So what does he like? Let’s take a look:
AngloGold Ashanti (NYSE:AU): This is the world’s No. 3 gold producer, with substantial operations in Africa. It’s Paulson’s largest holding of a miner, with 41 million shares. The market value is about $2 billion.
Like other gold operators, AngloGold must deal with escalating costs. Yet with the high price of gold, margins should remain robust. If anything, the top line is likely be quite strong for the rest of the year.
To diversify its footprint, AngloGold is expanding into areas like Australia and South America. Ultimately, this should help propel the long-term growth prospects of the company. As of now, the company has roughly 71 million ounces of gold proven and probable reserves.
Barrick Gold (NYSE:ABX): This is not only a favorite investment for Paulson — even Soros has kept his shares (although, it’s still a relatively light amount). As for Paulson, he owns 900,000 shares.
Barrick is the world’s No. 1 gold producer, with 25 mines across five continents and has 140 ounces of proven and probable reserves. But to grow, Barrick realizes it needs to ramp up its acquisitions. So the company recently agreed to shell out $7.3 billion for Equinox Minerals, which is a top copper producer. The crown jewel of the deal is the Lumwana mine. Based in Zambia, it produced 323 million pounds of copper last year.
The diversification strategy is smart as China is likely to be a huge consumer of copper. Besides, this industrial metal has strong margins.
SPDR Gold Shares (NYSE:GLD): This is an exchange-traded fund that owns actual bullion, which is stored in vaults in London (HSBC Bank USA is the custodian). There are no uses of complex investments like futures or options.
Basically, GLD allows you to track the spot price of gold without having to store or insure it. All in all, it is a highly efficient structure. Keep in mind that the expense ratio is only 0.40%.
Paulson owns about 31.5 million shares of GLD, which amounts to about $4.6 billion. He’s the ETF’s largest shareholder.
Tom Taulli’s latest book is “All About Short Selling” and he has an upcoming book called “All About Commodities.” You can find him at Twitter account @ttaulli. He does not own a position in any of the stocks named here.
