Gold gives up gains as dollar stops descent

In the Lead: “Advantage Minus”

Well, take a look at this most recent Reuters Insider video clip and see what conclusions you might draw…other than the fact that it makes no sense for prices of certain metals to be as high as they have become, especially in light of the fact that the world is-as Reuters puts it- “awash” in same. Perhaps, someone, somewhere, has some ‘splainin’ to do…

To be sure, someone else has to also do some accounting to do to investors; this time via a brave spokesperson. We are talking about John Paulson’s Advantage Plus fund – a fund that dropped by 19.35% in September and which is now off by 46.73% on the year and could well be called “Disadvantage Minus.” Said brave spokesperson has thus far not responded to media requests for explanations albeit Absolute Return Magazine did publish the bleak performance data on Friday. Mr. Paulson is slated to offer some insight into what went wrong, and perhaps why, when he conducts a conference call to investors.

The fund manager who was thought to be able to do no wrong and who reaped handsome rewards from his gold-based bet last year has seen one wager after another turn sour in the wake of recent market turmoil. Frequently, the mantra in the investment world is obsessed with not how one makes money in a bull market (thought be a piece of sweet cake) but how well one performs in the face of market adversity.

Reuters reports that Mr. Paulson’s bets on “big bank stocks like Bank of America turned against him, and now even his call on gold, which had paid off handsomely last year, appeared to be off. Paulson's gold fund, which includes the metal and mining companies, lost 16.35 percent last month and trimmed its year-to-date gain to 1.34 percent.” Mining shares and their inability to keep up with gold’s gains (despite incessant promises by various newsletter vendors that “we are turning the corner”) appear to be part of the problem.

Meanwhile, the Dennis Rodman-quality, near 9%, rebound in the S&P 500 from what had been termed as “bear market” territory has sent a few…bear species into early hibernation of late. Yesterday’s 330-point advance in the Dow was “postcard-from-the-Riviera” quality as well. As for the dollar, well, despite several assertions made yesterday that the US will not fall back into recession, there are currency strategists who expect it to commence declining from current levels on account of many investors having become “extraordinarily long” in the currency.

Some analysts envision a $1.34 euro-dollar and the American currency changing hands with the yen near 76.6 by year-end. That, too, remains to be seen as much depends on how quickly Europe gets its financial house into solid shape and looking less like it is made of playing cards. Setbacks in the Old World could reignite the safe-haven quest that vaulted the greenback to the top of the asset performance charts in September.

Meanwhile, guess who else is looking to “reshape” the banking space in order to avert a huge domino run? If you guessed China, you are spot-on. Beijing made a very public and publicized intervention into the teetering financial sector of the country by having the nation’s sovereign wealth fund (you know, the one that was supposed to buy thousands of tonnes of gold by now) boost stakes in the Bank of China, ICBC, the aptly named China Construction Bank, and the Agricultural Bank of China. In recent weeks, global investors appear to have turned less than lukewarm on China and commodity prices as well as Chinese financial shares have felt the brunt of their “walk-out.”

Until tomorrow, let’s try not to walk the...plank.

Jon Nadler

Senior Metals Analyst – Kitco Metals

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About the Author
Jon Nadler Jon Nadler is a Senior Analyst at Kitco Metals Inc. North America
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