By Peter Krauth, Contributing Editor, Money Morning
Forget about all the forecasts being made for 2010. Here’s my prediction for 2015: An entirely new name – John A. Paulson – will grace the coveted top of the annual Forbes billionaires list.
And the gap between Paulson and the runner-up billionaire will be huge.
Everyone knows that Bill Gates and Warren Buffet are America’s – and the world’s – two richest men. But the financial crisis of 2008 and 2009 was not kind to either of them, eradicating $17 billion of their combined net worth.
On that famed list, at No. 33, is where you’ll find Paulson today. The hedge-fund manager’s financial acumen led to what is now being called the “the greatest trade ever.” By shorting the subprime mortgage market, Paulson & Co. Inc. generated a $15 billion gain.
Paulson’s personal net worth of $6 billion is impressive in its own right. But over the next several years, I believe that Paulson’s trading savvy will vault him into the top spot.
And the vehicle that will take him there is gold.
More recently, however, gold has experienced an unprecedented run. At one point, for example, it sprinted from $1,050 to $1,218 in under 30 days flat.
That’s an impressive 16% gain. Between late October and early December, the precious yellow metal saw 14 record closes in 17 days. So its recent pullback is not only unsurprising, it’s healthy.
Don’t forget that gold’s clocked a positive gain every year since 2001. Yet gold’s run is far from over; rather, it’s just getting warmed up…
Another hallmark of Stage Two in a gold bull market is when sophisticated investors take positions of their own.
Investors in Asia, Europe and many other global investors have a much stronger affinity for gold, and understand its ability to preserve wealth. Experienced and professional investors alike make their portfolio allocations at this point in the cycle, and Paulson’s just one of several institutional investors who exemplify this out point of view.
The purchase of 200 tons of International Monetary Fund (IMF) gold by India’s central bank in late October helped propel gold to its recent record highs. Given that this was the single largest purchase of gold by a central bank in the past 30 years, its dramatic effect is justified.
But two aspects of this landmark transaction are especially noteworthy. First of all, India was comfortable enough with gold at $1,045 to part with $6.5 billion – no small outlay, even for a central bank. And second, India chose gold over unbacked fiat currencies.
Other growing global economies have also been hoarding physical bullion, says the World Gold Council, which forecasts that 2009 will see a new trend asserted: Central banks will become net gold buyers for years to come.
I’ve already made a strong case for gold. But those aren’t the only catalysts pushing gold higher. In fact, here are a few more:
- Since its 1980 peak, gold’s only up 65%, while inflation is up 175% and stocks have gained 900%: there’s plenty of ground to make up.
- Scores of junior gold explorers and miners still trade below book value; many are still too cheap.
- Gold production peaked in 2001 and has been falling since that time, meaning that the supply-and-demand dynamic points to much higher prices for gold.
- Sovereign-debt defaults are a growing risk, against which gold is the best insurance (see Greece, Ireland, Spain and other recent ratings downgrades)
- There’s growing interest in gold. But the masses have yet to join in; when the typical investor and consumer starts to view gold as an essential holding, the price of gold will begin a near-vertical ascent – a near-mania/near-bubble scenario that could cause gold to more than double from current prices.
I said at the beginning of this piece that Paulson was headed for the No. 1 spot on the Forbes billionaires list.
Now you know how he’s going to get there.