In case you missed it... early last week The Reformed Broker detailed the incredible amount of gold that hedge funds (in this case Paulson & Co.) have accumulated in a very short period of time:
John Paulson of Paulson & Co, the legendary hedge fund manager who made tens of billions betting on the mortgage crisis between 2007 to 2009, likes gold. He really likes it. He likes gold more than a friend.
To most market participants, this is not news, but here’s something you probably didn’t know: Paulson owns more gold than several major countries! Combined!
Retail investor (and more recently this hedge fund) support has made gold a one way bet for much of the past 6+ years. Thanksgiving's Dubai debacle however provided a glimpse into how quickly this may potentially all come to an end. Per the FT Alphaville:
Gold had at one stage dropped as much as 5 per cent as it responded to safe haven flows into the dollar. The precious metal has since recovered to trade about 3 per cent lower at $1,155.80.Don't fret... gold has snapped back / stabilized and now is once again within striking distance of new highs (chart below per Kitco).
Commenting on the sell-off, Davies — who had moved his fund to its maximum 50 per cent under weight gold position:“It happened so quickly, I’ve never seen a quicker paper liquidation in gold ever.”
Regardless of what is or is not a justified price for gold, the only thing that matters is the next price that a buyer or seller is willing to transact. And while I continue to expect to see a one-sided trade, when that one sided trade ends, it has the potential to get real ugly, real fast (though I think we are still a long ways away) as this "tonnage" hits the market.