John Paulson: Gold Bubble is Impossible Right Now

Posted by Brittany Stepniak - Wednesday, November 2nd, 2011

“Gold is not a financial asset to be compared with dot-com stocks or Miami condos and it is not a commodity like pork bellies or crude oil. It is the ultimate currency for the truly sophisticated wealth holder in a time of substantial unreserved credit promotion.” 

 --Paul Brodsky (Fund Manager)

On October 30, John Paulson discussed his personal investment strategy at the Chinese Finance Associations' 17^th Annual Conference in New York.

The Chinese Finance Association’s 17th Annual Conference in New York hosted several prominent speakers from Wall Street in addition to John Paulson. Vice Chairman of the Blackstone Advisory Partners, Byron Wien, presented, as well as King Street Capital Co-Founder Brian Higgins, TPG-Axom Capital Management’s Dinakar Singh, the Vice Chairman of Global Markets for Bank of America Merrill Lynch Hayley Boesky, Nomura’s Global Chief Economist and Head of Economic Research Paul Sheard and Goldman Sachs Senior Economist Andrew Tilton. 

The main sector Mr. Paulson addressed in his lofty speech was gold. And, for the time being, he is bullish on the matter. 

According to John Paulson, there is no way that gold is in any sort of bubble right now. Basing some of his assertions on reports from BusinessInsider, Paulson says gold ownership volume is too low for any bubble to form right now.

Ever since the Fed initiated rounds of quantitative easing, Paulson has viewed gold as a currency. In an uncertain economy and a wildly volatile stock market, investors have turned to gold as a safe-haven, but people haven't lost all their hope in our currency and economy. Not to mention, gold isn't cheap...therefore, actual gold ownership volume still remains relatively low.

Take a look at a pie-chart of actual gold holdings: 

mage courtesy of @RMBreanna via Twitter.

These assertions suggest that gold is still a direct threat to all fiat currencies. That being said, gold is set to soar by the thousands – even all the way to $10,000 – perhaps sooner than you think.

From 24hGold:

If gold were a commodity it would be in a bubble, but it is not. Gold has been money for over 3,000 years, and still is today. Although never officially recognized as such, gold trades on the currency desks of all the banks and brokerages, and is held by central banks. Since 2009, central banks have become net buyers of gold. Pension fund manager Shane McGuire makes the point in his book, Hard Money: Taking Gold to a Higher Investment Level , that gold and silver are really the newest asset class, not the oldest, since until 40 years ago they were money. Many readers will remember a time when silver dollars were exchanged in stores at face value.

Paulson also tackled another hot topic at the “Anchor in the Storm or the Next Bubble to Burst: China at Crossroads” conference: investing in China.

Like many cautious investors, Paulson believes there is too much risk in investing in China right now. Amidst rumors that their economy could nosedive on the failures within the real estate industry, Paulson, and countless others, are hesitant. 

What Paulson absolutely isn't hesitant about, is gold.