By Nicholas Larkin and Pham-Duy Nguyen - Feb 7, 2011 8:29 AM MT
After the worst January for precious metals in two decades, investors still have a $102 billion bet on higher prices, hoarding more gold than all but four central banks and more silver than the U.S. can mine in almost 12 years.
The five analysts ranked by Bloomberg as the most accurate over two years expect silver to rise as much as 23 percent before the end of 2011 and gold 20 percent, the median of their estimates show. UBS AG predicts the strongest industrial demand for silver since at least 1990 and the second-highest sales of exchange-traded gold products on record.
The decade-long surge in gold attracted fund managers from John Paulson to George Soros and is now spurring central banks to add to their reserves for the first time in a generation. Once written off as demand for photographic film waned, silver found new uses in everything from solar panels to plasma screens, making it the precious metal most used in industry. As stocks rose 9 percent and Treasuries returned 67 percent since the end of 2000, gold surged fivefold and silver sixfold.
“I had to chuckle when I saw reports that it was over for gold,” said Michael Cuggino, who helps manage $10 billion at Permanent Portfolio Funds in San Francisco, and has about 20 percent of his assets in gold. “Some investors have taken money off the table after a significant run-up in 2010. If you look at the macro environment, the instability around the world, the worldwide currency devaluation, these factors all bode well.”
The Standard & Poor’s GSCI Precious Metals Index dropped 6.5 percent in January, the most for the month since 1991. Gold traded in London retreated 6.2 percent and silver 9.3 percent.
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The Economic Times
John A. Paulson made $4 billion betting against newfangled mortgage investments. But he made even more betting on an old-fashioned investment: gold.
Paulson, a hedge fund manager who sprang to fame when the housing market collapsed, personally made about $5 billion in 2010, according to two investors in his company.
How? Paulson bought gold – lots of it. His firm, Paulson & Co., owns securities that represent the rough equivalent of 96 metric tons of the metal.
It is an outsize wager by almost any standard. Paulson’s firm does not actually own all that gold. But if it did, it would be sitting atop more gold than the Australian government. Paulson himself would be holding more gold than Bulgaria.
Paulson is known for betting big. His payday for last year exceeds the $4 billion he made for 2007. He became one of the most celebrated hedge fund managers in the business after his firm shorted subprime investments.
The 2010 income, which was first reported by The Wall Street Journal, was the culmination of a remarkable comeback for Paulson last year.
While Paulson’s firm oversees about $36 billion of assets in a range of hedge funds, the bulk of his personal fortune is invested in his funds that buy securities linked to the price of gold. Gold jumped almost 30 percent in 2010. So far this year, however, it has fallen almost 6 percent.
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