The Telegraph reports that China warns of a gold bubble:
“Experts say that China is putting a floor under the gold price but does not chase rallies once they are under way.
There is also a double-edged twist to news that Barrick Gold, the world’s biggest gold mining company, has closed the final 3m ounces of its notorious hedge book ahead of schedule. While the move is a bet that prices will continue to rise, it also means that Barrick has been a big buyer of gold lately. These purchases have now stopped. One of the key drivers behind the spike this autumn has been removed.”
This article is one of the few out there that takes into account the time lag between an announcement and an action. Many of the events that reporters tout as proof that the gold price will spike much higher right way are actually events that have taken place in the past – for eg., purchases at lower prices – or are hedges that have a more complex function than the usual retail investor has in mind, with the siren call of “gold´s going to the moon, jump in now or you´ve lost it forever” sounding in his ears.
Take trader John Paulson´gold purchase. It took place in January, apparently. And remember that it was a position taken by his hedge-fund, with his clients money. Paulson gets his fee no matter how that trade turns out long term, and if his fee is a percentage of the assets under management, a purchase when the price is high is better than one at rock bottom, even if his clients´profits are not maximized that way. (sorry: thoughtless blunder there)
Notice finally that Paulson´s own fortune is in gold to a much lesser extent – only about $250 million of his reported $6 billion net worth. That comes to about 4% of his assets….(Correction: that´s 6.8 billion and less than 4%)
Not an earth shaking proportion by any means.
So, what gives?
Lila,
Paulson gets his fee no matter how that trade turns out long term, and if his fee is a percentage of the assets under management, a purchase when the price is high is better than one at rock bottom, even if his clients´profits are not maximized that way.
If his fee is a percent of AUM, it’s likely being taken quarterly based on fair-value at each quarter mark. But even if it isn’t, he doesn’t get paid on a transaction-basis. If he stayed in cash all year he’d still take a percent of that cash. So it doesn’t benefit him to recklessly bet his clients money to earn a fee, especially because if he loses money he will not make an incentive fee on top of his mgmt fee.
Right, make sense?
Sure….
I´m not arguing that it´s a bad bet..I´m arguing that he doesn´t have to care that much if it´s his client´s money.
He can make riskier moves than he would on his own dime..
Tell me why his own money is so little in gold, then…
Actually, his move into gold might be more Machiavellian than you think, given we don´t know what other investments he holds or how he holds them.
He´s not much in physical gold..he´s in miners, from what I understand.
What is his fee, about 1% plus 20% of profits?
He might have enough to feel a safe 1% is better than a stressful uncertai 20%
Then again, why has he taken Greeenspan on board?
Pay back?
That means he´s pretty connected, right?
If he´s connected that way, his moves in the market (the publicized ones) could be PR of some kind..or some kind of quid pro quo arrangement.
Think of Buffett
Maybe he´s hopiing someone will cut him slack on something else down the line.
I know Einhorn moved into gold..and Einhorn is part of the crew of shorts who are connected to insider trading and illegal collusion with analysts.