Smart money keeps on buying gold: Paulson, Soros, Pimco … except for Warren Buffet

An interesting article appeared on the GATA website this weekend. Bill Murphy who is the chairman of GATA, did an interview 2004 with the magazine “Smart Money”. He shared his bullish expectations on the gold market back then, stating that the gold price would at least double. The magazine along with a New York fund manager did not believe in a positive outlook of gold.

Now here is the interesting part: the magazine just published a followup article in which they admit they were wrong. That’s what they call integrity. We find it particularly interesting because there are some many bears out there whose ego’s are too big to admit they are wrong, even as gold keeps on making new highs. Here is the link to the article of the magazine in which they admit their mistake.

So apart from GATA, who is buying gold today? It appears that smart money (not the magazine) has recently been stepping into the gold market. Should we interpret that as an additional sign that the bottom is in and that we are starting a new leg up in precious metals? We leave it up to the reader to judge.

Bloomberg reported this week that “Billionaire John Paulson raised his stake in the SPDR Gold Trust, the biggest gold ETP, by 26 percent in the second quarter and George Soros more than doubled his holdings, U.S. Securities and Exchange Commission filings showed Aug. 14. Investors will buy 150 tons through ETPs this year and next, Barclays Plc estimates.” In an earlier article, we got some more details from Bloomberg “Paulson & Co., which owns the biggest stake in the SPDR Gold Trust, increased its holdings to 21.8 million shares in the three months through June. The New York-based $21 billion hedge fund firm had more than 44 percent of its U.S. traded equities tied to bullion, or 16 percent excluding the SPDR Gold Trust product, the filing showed. Paulson uses his stake in the product to back shares that are denominated in gold.”

Moreover, Fox Business reported that Pimco, the world’s biggest bond-fund manager, increased their gold holdings from 10.5% to 11.5% of their total assets. They are doing so on  increasing concerns of inflation, which will ultimatel lead to much higher gold and silver prices. Pimco correctly point to a combination of loose monetary policies, excessive government debts and rising commodity prices as key drivers of higher precious metals prices.

When talking about smart money, one would logically point to one of the most wealthy people on earth: Warren Buffet. Clearly Mr Buffet is not buying gold, at least that’s what he is saying publicly. We’ve found a very valuable reason, described by Ronald Stoeferle in his “In gold we trust 2012” report on page 90. The reasoning is that Mr Buffet is mixing up monetary value with investment purposes. Fundamentally gold is an alternative form of money, not an investment. It’s a store of value. Logically storing value does not bring interests or dividends. The term that Ronald Stoeferle uses in his report to describe this type of feeling about gold: aurophobia.

In closing, we point to the interesting fact that the previous examples of smart money had been accumulating gold when it dipped down the 1,500 dollar level. That’s another proof of the wisdome to buy the dips and don’t chase prices higher.

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