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Paulson’s Gold Fund Faced 22% Losses in July

One nugget that may have been lost in the clamor of hedge-fund John Paulson’s conference call with Bank of America employees and clients yesterday: The fund that represents his core thesis right now has struggled mightily so far this year.

Paulson’s gold fund, which holds an array of gold miners, fell a whopping 22 percent between the beginning of the year and July 31, according to people familiar with its returns — outsinking the oft-discussed flagship funds, which were down 13 percent and 18 percent respectively during the same period, by a considerable margin.

In an hour-long conversation with BofA brokers and investors, the Paulson & Co. founder acknowledged the sagging numbers in the gold fund, calling it “the worst performing fund this year.” Still, he noted, the fund had bounced back somewhat this month along with the yellow gold itself. (Read More: .)

Indeed, noted one of the people familiar with the matter, the Paulson gold fund has risen 10 percent through Aug. 28, leaving it down 12 percent for the year so far. (The Advantage fund, Paulson’s main flagship, is still down roughly 13 percent, this person added, whereas its levered sibling, Advantage Plus, is still down roughly 18 percent.)

The rough summer for Paulson’s gold fund is ironic given the way that Spencer Boggess, BofA’s director of hedge fund investments, portrayed Paulson & Co. to the call’s 200 plus participants: as essentially a proxy for gold. (Read More: .)

“If you like the gold miner thesis, this is something that should encourage you to keep your position with John,” said Boggess, according to the person who was briefed on the call. “If you don’t like, fundamentally, the gold miner thesis, this is where you should be rethinking this investment.”

Paulson is heavily invested in an array of miners including the South African company AngloGold Ashanti and Gold Fields and the Vancouver-based NovaGold Resources, according to regulatory filings.

He also invests in the GLD , an exchange traded gold fund which he uses as a vehicle for allowing investors to house their Paulson & Co. assets in the yellow metal rather than in dollars. (Read More: .)

Boggess, whose firm has expressed continued support for Paulson even after rival firm Citigroup opted to throw the hedge-fund company off its investment platform and redeem up to $410 million, praised Paulson for his “deep bench” and “quality” work, but nonetheless called the firm’s strategy a “volatile” one, this person added.

Paulson told call participants that he believed gold – which has been off its all-time highs from last summer – would perform strongly over the next five years, added this person. Gold prices are hard to predict because of the array of factors that determine the yellow metal’s value, he added – a list that includes Chinese demand, liquidity, central-bank actions, and commodities prices. But with the continued tumult in Europe and the likelihood of higher inflation there, Paulson added, gold was poised to move higher.

—By CNBC's Kate Kelly