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How John Paulson Lost $630 Million

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The hedge fund manager's position in the SPDR Gold Trust made up 44% of his company's assets, and with the price of gold down 30% from 2011 highs, Paulson has lost big time.

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It has been a rough couple of months for gold bugs. With the precious metal slowly declining in price since the start of 2013, April's nosedive has driven many investors out of the commodity once considered a "safe haven." Down nearly 17% this year and almost 30% from September 2011 highs, the best years of gold investing seem behind us. What was once thought of as a darling of the commodity space is now an asset that has destroyed a number of portfolios in recent years, and even fooled a few famous traders.

Hedge Funds Throwing in the Towel

While many gold-heavy portfolios took huge losses in April, the US economy has continued to pick up steam. This has prompted many hedge funds to cut their losses on the precious metal and look for greener fields. According to an article on Bloomberg, by the end of spring, "funds and other large speculators lowered their net-long position by 4.1% to 54,779 futures and options" as a part of a mass exodus from the spiraling commodity. But one trader, who has long been a gold bull, has been hit especially hard.

Paulson Hit Hard

Right after the gold crash, hedge fund manager John Paulson had a particularly rough time explaining his losses. The legendary investor, who made a big increase in his gold position late last year, held 21.8 million shares of the SPDR Gold Trust (NYSEARCA:GLD) in August 2012. This position alone made up approximately 44% of his company's assets.

At that time, gold was around $1,600 per ounce and GLD was around $160. In April alone, Paulson saw $300 million disappear from his fund in just a few days, as gold took a steep nosedive. Now, the precious metal is hovering around $1,375 per ounce with GLD at $132. Since making the jump to hold nearly 22 million shares of GLD late last year, Paulson's position in the gold ETF has been subjected to losses of $630 million. To the surprise of many, Paulson has stated that he will not be closing his gold fund, as he still sees a viable upside for gold over the long term.

Gold Outlook Bleak

There are still gold investors out there preaching the strength and security of this commodity, but the near term future is looking pretty bleak. Goldman Sachs Group, which was one of the first to announce its plan to short gold just before the price drop, has said that "gold will continue to slide over the medium term on a "reacceleration" in US growth." With an improving economy and Fed asset purchasing expected to taper off soon, the short-term future for the metal is plagued with uncertainty.

Including the June 20 sell-off, Paulson's GLD position has lost more than $800 million as GLD sank well below $125.

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Editor's note: This article by Carolyn Pairitz was originally published on Commodity HQ.
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