BEHIND THE MONEY: Gold -- A 40-Year Loser -- Becomes Subprime Seers Next Big Bet
John Paulson, the hedge fund manager who became a billionaire by betting against subprime mortgages, bought a stake in AngloGold Ashanti , a South African gold miner, from Anglo American yesterday. Paulson has added aggressively to his gold holdings lately, which already include a $450 million stake in Kinross Gold Corp , according to Dow Jones.
Paulson joins David Einhorn, who infamously bet on the demise of Lehman Brothers and reported stakes in the SPDR Gold Shares ETF and the Mkt. Vector Gold Miners ETF last month.
These hedge fund whales are making these bets despite the fact that gold has proven itself to be a long-term loser since 1970.
"Gold was the only asset class that generated a significant proportion of negative returns over ten-year periods," wrote Richard Bernstein, Bank of America/Merrill Lynch Chief Investment Strategist, in a note to clients yesterday. Bernstein looked at gold versus different stock classes, real estate, corporates and Treasuries over rolling 10-year time frames.
But don't call the subprime seers crazy just yet.
"There has never been an instance where the best-performing asset class during one decade was the leader during the subsequent decade," wrote Bernstein.
So maybe the next ten years will be the decade of gold. We'll look at the long-term and short-term trade on bullion tonight.
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