Paulson Bets on Inflation, Ups Ante in Gold

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Includes: AU, BCS, DGL, GDX, GLD, IAU, KGC, LYG, RBS
by: Market Folly

John Paulson's hedge fund Paulson & Co has taken a $1.28 billion stake in AngloGold Ashanti (NYSE:AU). They took an 11.3% stake at $32 per share and are now the company's 2nd largest shareholder. This isn't the first gold miner Paulson has taken a large stake in, as he also is the fourth largest shareholder of Kinross Gold (NYSE:KGC) with a 4.1% stake. Paulson said that AngloGold Ashanti is "one of the best managed and undervalued of the major global gold-mining companies. We look forward to the implementation of their global expansion strategy." We recently covered the rest of Paulson's portfolio holdings here.

We've noted in the past that hedge fund Paulson & Co has made a fortune by betting against all things sub-prime. Additionally, they've profited from shorting UK financials and in particular, they've focused on Lloyds (NYSE:LYG). (For more insight as to Paulson's way of thinking, check out his year-end letter & report). He's been quite successful, having made correct bets against Barclays (NYSE:BCS), Royal Bank of Scotland (NYSE:RBS), and Lloyds (which all conveniently fall at the lower end of the list above). We would be remiss though if we didn't point out the fact that John Paulson has become slightly constructive on some other destroyed assets he had been previously short, and is looking to slowly start buying them. It remains to be seen though if he would reverse such a bet against the institutions themselves.

And, in what could be considered a 'doomsday' trade, inflation play, or a bet made based on various macro factors, Paulson now has quite a large position in gold by way of gold companies. And, he is not the first notable hedge fund player to enter such a space. Earlier, we had noted that David Einhorn's hedge fund Greenlight Capital had taken positions in gold via GLD and gold miners via GDX (NYSEARCA:GLD) (NYSEARCA:GDX). So, there seems to be a confluence of smart hedge fund minds entering the gold play in various capacities. (You can view the rest of Greenlight's portfolio here).

One thing is for sure: Paulson isn't the first major player to enter the gold play in these historical times, and he most likely won't be the last, either.