The Pacific Group Ltd., a Hong Kong-based fund founded by a former PaineWebber Inc. trader, just announced plans to convert one-third of its hedge-fund assets into physical gold.
The move is only reinforcing a recent flood of hedge fund money into gold as veteran traders place large bets that prices will go up as governments print more money to pay off debt.
William Kaye, founder and CIO of The Pacific Group Ltd., is following some very famous fund managers into large gold positions.
Soros Fund Management, founded by George Soros, and Paulson & Co., founded by John Paulson already have massive stakes through the SPDR Gold Trust ETF (NYSEARCA:GLD), the biggest gold-backed exchange-traded product.
Soros raised his GLD investment by 49% in the third quarter to about $215 million while Paulson has about $3.6 billion invested in GLD, according to documents filed with the Securities and Exchange Commission.
“Gold, the way we look at it, is anywhere from being undervalued to being seriously undervalued,” said Kaye. “We’re in the early stages, in our judgment, of what would likely be the world’s largest short squeeze in any instrument.”
Ownership of financial instruments based on gold, such as Comex futures contracts, represents more than 100 times the physical gold that exists above ground worldwide.
“All you actually need for a major upward revaluation of gold is for a small fraction of people to physically reclaim from major central banks or other depositories that are holding your gold and using it for their purposes,” Kaye added.
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