John Paulson, who made a cool $1 billion in the deal that begot the SEC fraud case against Goldman Sachs, would be the wealthiest man in the world if gold reached $5,000 an ounce, having invested 10 percent of his $30 billion hedge fund in gold related securities.
Gold is also the largest holding for George Mindich’s $13 billion hedge fund, himself a former partner at Goldman Sachs.
George Soros, the 15th wealthiest man in the world after he made $1 billion betting against the British pound in 1992, was quoted as saying “gold is the ultimate asset bubble” in December of 2009.
Unbeknownst to many investors, he’s also the 6th largest owner of gold.
(On CNBC.com: Oil, Gold, Natural Gas Prices Now )
The banks and other professional investors have neither the responsibility nor an incentive to fix the government deficits. In fact, it’s their fiduciary responsibility to make money for their shareholders by any legal means available, an obligation enforceable by civil law. Who would fault them for taking advantage of witless public officials who spent the last 30 years soliciting votes with unfunded promises of prosperity, commonly disguised as tax cuts, no-bid contracts and social safety nets indifferent to the basic principles of math?
Some have speculated that the hedge funds will pull the rug from underneath gold when the price is right, but maybe it’s the other way around?
Perhaps the large investors will instead exploit market inefficiencies by sitting on the sidelines of fiscal incompetence and refuse to buy Treasury bonds. The public’s appetite for economic gimmicks will have consequences, and whether we like it or not, nobody knows what happens when patriotism gets in the way of profits.
Disclosure: Mr. Johnson owns roughly $7 million of gold for his clients and about $200,000 personally.
Ivory Johnson is the director of financial planning at Scarborough Capital Management, Inc. He is a Certified Financial Planner, a Chartered Financial Consultant and a frequent guest on CNBC. Mr. Johnson attended Penn State University, where he received a Bachelor of Science degree in finance.