The Best Trader in the World Is Wildly Bullish on Gold
Wednesday, November 04, 2009
The “Michael Jordan of trading” is now table-poundingly bullish on gold. And the Reserve Bank of India may have just made him look like a prophet…
John Paulson (no relation to Hank) is widely viewed as the most successful money manager of our times. Paulson made billions of dollars for himself and his investors by finding an obscure, non-public way to bet against the housing bubble. In terms of absolute dollar profit, his subprime crisis score is the largest ever.
Given his success, it is notable that Paulson is now quite bullish on gold. The Paulson Funds have heavy exposure to gold and gold stocks, and even offer an investment vehicle with payouts denominated in gold.
But, for all that, John Paulson is more of an investor than a trader. A trader, in the purist sense of the word, is an opportunistic mercenary type… someone who can raid most any asset class – stocks, bonds, commodities, currencies – and walk away with armloads of cash.
A Trader’s Trader
That is what makes it even more notable for Paul Tudor Jones – the ultimate trader’s trader, and arguably the most successful pure trader alive today – to be wildly bullish on gold.
Your editor has long been a fan of PTJ (Jones’ initials), seeing him as a sort of market mentor from afar. In the 80s and 90s, PTJ was known as the “Michael Jordan of trading.” After cutting his teeth in the commodity pits, Jones went on to trade most every asset class under the sun in his futures trading fund.
The track record is legendary. PTJ started out with multiple consecutive years of triple-digit returns in the 1980s. He then reputedly made $80 million to $100 million in the 1987 stock market crash… nearly doubled investors’ money again in the 1990 Nikkei crash… and went 20+ years overall with no losing years.
While some fund managers are happy to chat with the press, PTJ prefers to avoid the spotlight as a rule of thumb. After a documentary came out in the 1980s (appropriately called Trader), PTJ decided he didn’t want it out there and bought up all the copies. (You will never see him embracing the public eye.)
A Strong Vote for Gold
Hence the surprise when PTJ came out in his recent quarterly letter pounding the table for gold.
“I have never been a gold bug,” Jones writes to his investors. “It is just an asset that, like everything else in life, has its time and place. And now is that time. The economic and political comparisons to the late 1970’s are too numerous to ignore.”
The argument is backed up with chart comparisons like the one below:
The top chart shows the dollar value of international reserve assets – that is to say, the total worth of central bank holdings around the world – in billions of dollars since 1970.
Over the past 39 years, international reserve holdings have skyrocketed from practically nothing to more than $8 trillion. Meanwhile, the percentage of those holdings counted as gold went from a whopping 70% or so in the late 1970s to near single digits today.
India Lights a Fire
Perhaps fitting, then, that the Reserve Bank of India (RBI) lit a fire under gold and gold stocks yesterday, sending the yellow metal to nominal record highs. (To break the inflation-adjusted high, gold will have to crack $2,000 per ounce.)
“Gold jumped to a record,” Bloomberg reports, “after India’s central bank bought 200 metric tons of the metal from the International Monetary Fund, heightening speculation that there may be more official purchases.”
The RBI’s actions call to mind a Taipan Daily missive written back in February, “Why the IMF and Fort Knox Won’t Put the Hurt on Gold.”
You can reference the data table in that piece to get a sense of just how much buying the likes of India, China and other major players have left to do if they hope to bring their gold holdings up to snuff.
When asked to describe his competitive edge as a trader, Jones described it this way:
The secret to being successful from a trading perspective is to have an indefatigable and an undying and unquenchable thirst for information and knowledge. Because I think there are certain situations where you can absolutely understand what motivates every buyer and seller and have a pretty good picture of what’s going to happen…
With the yellow metal storming the barricades as I write, it appears PTJ’s instincts have set him in good stead once again.
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