AngloGold Ashanti Limited (ADR) (AU), NovaGold Resources Inc. (USA) (NG): John Paulson and the Dangers of Gold Investing

What’s next for Paulson?
Based on reports of a letter Paulson sent to investors earlier this month, it’s unlikely that Paulson will change his overall strategy for the fund. The hedge-fund manager argued that the gold fund still offers the potential for strong returns in the long run, citing the need to protect against macroeconomic factors that could reduce the purchasing power of the U.S. dollar and major foreign currencies.

In Paulson’s case, much of the assets managed within the fund belong to Paulson himself, so he likely doesn’t have to worry about outside investors seeking to make withdrawals. That should help the fund stick to its long-term strategy, as it’s usually pressure from outside investors that forces hedge funds to liquidate positions after big losses.

Is gold safe?
The lesson Paulson’s experience has for gold investors is that no matter how convincing an investment thesis might be, making aggressive bets based on that thesis can result in huge losses if you turn out wrong. Gold investors might well have their views proved right in the long run, but putting too much of your money behind your beliefs can put your entire financial future at risk.

The article John Paulson and the Dangers of Gold Investing originally appeared on Fool.com is written by Dan Caplinger.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool has no position in any of the stocks mentioned.

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