The declines come at a delicate time for Mr. Paulson, who gained prominence by cashing in on a bet against the U.S. housing market and has a net worth recently estimated at $15.5 billion by Forbes magazine. His hedge funds have shrunk in value after losses, people familiar with the situation say, and some investors face a month-end deadline to ask for their money back.
A Paulson & Co. spokesman declined to comment.
Mr. Paulson saw his fund dedicated to gold investments lose 16.4% in September, according to investors. That is worse than the 11% fall for gold prices. The Paulson gold fund now sports a gain of just over 1% in 2011, through September, compared with a 16% year-to-date gain in gold—a difference likely attributable to the fund's investment in gold-mining companies, whose shares haven't kept pace with gold's rise."
This article reveals the speculative nature of gold. It should be rising due to global economic uncertainty, but it is not. A decade ago, gold was at $270 an ounce. It is still the same same precious metal, with little use other than as an investment when the threat of inflation is strong and the regard for fiat money is weak. Also driving up the price of gold is further speculation, not investment. The central banks of Thailand, Mexico and South Korea have been buying as a reserve asset. Venezuelan President Hugo Chavez has ordered the repatriation of all gold assets, now being held at the Bank of England. None of these events has anything to do with the fundamental economic demand for gold. Less than 10% of gold goes for anything other than investment purposes.
If there is a massive withdrawal from Paulson's hedge funds, which has been reported, gold is likely to fall even more. A recent article speculated as much as a 25% pullout by investors the hedge funds managed by Paulson. This will send gold even lower. It is worthy of note that gold hit its all time high in 1980 (about $2400 in today's dollars), due to the commodity bubble creatded by the Hunt brothers attempting to corner the silver market. As with all asset bubbles, it is bursting due to a lack of fundamental economic demand.