Key Players Buying More Gold Now

Investor appetite for gold is heating up, in part because of signals from hedge fund guru John Paulson, the guy who saw the real estate meltdown coming in 2007 and became a billionaire as a result.

The Paulson & Co. founder “told investors it’s time to buy the metal as protection against inflation caused by government spending,” Bloomberg reported today.

“By the time inflation becomes evident, gold will probably have moved, which implies that now is the time to build a position in gold,” New-York based Paulson said in a letter to investors obtained by Bloomberg. Armel Leslie, a spokesman for Paulson, declined to comment.
Bloomberg reported that 12 of 22 companies surveyed had a buy on gold, with five surveyed neutral.

Paulson & Co., the largest owner of the SPDR Gold Trust Exchange Traded Fund, which trades in gold futures, cut its position in 2011, Bloomberg reported earlier, probably to cover losses in securities.

Paulson held 17.3 million shares in the exchange-traded fund as of Dec. 31, 15 percent less than the 20.3 million on Sept. 30, Securities and Exchange Commission filings showed. His holdings fell 45 percent from end-June, the first reduction in more than two years. He is still the biggest stakeholder.

A Feb. 14 SEC filing showed Paulson & Co. with $2.9 billion worth of SPDR shares, according to Bloomberg’s latest report.

Meanwhile, central banks—even as they act to inflate the currency supply, thus fueling the run toward gold—also are stocking up, Bloomberg reported.

Central banks are also expanding their bullion reserves, adding 439.7 tons last year, the most in almost five decades. They may buy a similar amount in 2012, the London-based World Gold Council said yesterday….

“By initiating further rounds of quantitative easing, central banks should be one of the supporting factors for commodity prices,” said Daniel Briesemann, an analyst at Commerzbank AG in Frankfurt.
Most analysts predict the appetite for gold will continue at least until concerns about the euro and European debt are allayed. But even if Europe were somehow able to get its debt ducks in a row, the really Big Kahuna of currency inflators—the U.S. central bank, the Federal Reserve—shows no signs of slowing down the printing presses. In the WealthCycles.com article, we cited investor Jim Rogers and others who believes the U.S. is in far worse shape than Europe, and that the unsustainable debt loads are setting the world up for a financial crisis far worse than that of 2008.

All of which is bullish for gold. As cited by Bloomberg, Jeffrey Sica of SICA Wealth Management opined: “The fear trade is pulling people back to gold. We will see gold prices rise to a record this year.”