LIVE GOLD PRICE

As the gold price reached a new all-time high at $1,152.85 per ounce, hedge fund billionaire John Paulson, announced that in order to personally increase his exposure to the gold price, his firm plans to launch a gold fund at the end of the year. Paulson & Co. will launch a gold-focused vehicle to provide investors with an alternative way to protect themselves against the inflationary consequences of the money creation undertaken by the Federal Reserve and central banks across the globe. The Wall Street Journal broke the story that, according to three investors, the fund will invest in the shares of gold mining stocks and other gold bullion-related securities such as futures and/or options.

Mr. Paulson held a meeting with investors in New York today to discuss the new fund, which will begin operating on January 1, 2010. At the meeting Mr. Paulson explained his view that the bull market in the price of gold and gold mining stocks still has a long way to run, and that his decision to start the fund was made in part to allow him to invest more of his personal wealth in the gold sector. According to a participant at the meeting, Mr. Paulson informed investors that he would invest as much as $250 million of his own money in the new fund.

In a recent quarterly letter to investors obtained by Bloomberg News, Paulson discussed his firm’s position in Toronto-based gold explorer Gabriel Resources Ltd. (GBU.TSX), whose stock he believes could increase 300% if the company is able to obtain the requisite permits and construct a gold project in Romania. The stock, currently trading at C$3.51, could reach between C$6 and C$8 per share if Gabriel is able to obtain a permit to build the gold mine, and up to $12 if it can begin producing gold, according to the letter. Gabriel has been attempting to secure permits for Romania’s largest gold mine for nine years, but has met with obstacles from several environmental groups. In July of 2009, the firm was unsuccessful in its efforts to convince a Romanian court of appeals to remove a suspension of a review of the project. On March 23, 2009, Gabriel appointed an interim CEO, and Paulson recently penned that “with a new CEO and restructured board we are hopeful that Gabriel will receive the necessary approvals.”

Gabriel Resources is one of several gold-related positions owned by Paulson & Co., as the firm is also the largest single shareholder in the SPDR Gold Trust (GLD), controlling 31.5 million shares, or 8.7% of the outstanding common shares, according to a June 30, 2009, 13F filing. The firm additionally has substantial positions in AngloGold Ashanti Ltd. (AU), Kinross Gold (KGC), and Gold Fields Ltd. (GFI). In the letter, Mr. Paulson wrote, “We believe all the stocks have upside potential in a flat gold price environment, but would rise even more in a higher price environment.”

John Paulson became one of the best known investors on Wall Street in 2007, as Paulson & Co. made $15 billion betting on a fall in home prices and subprime mortgages. He personally earned $4 billion, the largest one-year compensation total made in the history of Wall Street. Mr. Paulson is one of a growing number of well-respected institutional money managers to recently discuss his bullish views on the gold price and the gold mining sector. Quoted by the Wall Street Journal earlier this month on the unprecedented expansion of the money supply by central banks around the world over the past several years, Paulson stated, “What’s the only asset that will hold value? It’s got to be gold.” He added that the increase in the quantity of U.S. dollars and other fiat currencies in circulation will eventually lead to considerable inflation on a scale that has not been seen in a very long time.

Although Mr. Paulson does not have much experience investing in the gold mining sector, his strong investment record merits attention to this bullish call. When asked how to profit from his bearish views on the U.S. dollar, Paulson responded that since other fiat currencies face similar structural issues, his preferred way is to acquire leverage to a rising gold price through gold-related derivatives and gold mining companies. “Three or four years from now, people will ask why they didn’t buy gold earlier,” stated Paulson. Based on his track record, this is not a man to bet against.