Billionaire Hedge-Fund Manager John Paulson Says Now’s the Time To Buy Gold (GLD, IAU, SGOL, PHYS, SLV)

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February 21, 2012 3:53pm NYSE:GLD NYSE:IAU

Kerri Shannon:  Billionaire hedge-fund manager John Paulson wrote a letter to investors saying now is the time to buy gold, as prices are going to soar this year.

Paulson said government spending will trigger inflation, and investors should stock up on gold as protection.

“By the time inflation becomes evident, gold will probably have moved, which implies that now is the time to build a position in gold,” Paulson wrote in a  letter at the end of 2011 obtained by Bloomberg News.

Hedge funds and money managers have increased their bets this year on higher gold prices.  

Paulson’s hedge fund, Paulson & Co., is the biggest investor in the SPDR Gold Trust ETF (NYSEArca:GLD) with a $2.9 billion stake. The fund is up 24% in the past year and more than 10% this year alone. [ETFDN Related: Currency Debasement Should Take Gold Prices Over $6,000/oz and Silver Above $400/oz]

Paulson: It’s Time to Buy Gold

With  the U.S. Federal Reserve leaving interest rates near zero until 2014, more  investors will buy gold as an inflation hedge.

“The  appalling state of fiscal finances of most industrial nations does lead to  concerns about the possibility of inflation,” Mark O’Byrne, executive director  of brokerage GoldCore Ltd., told Bloomberg. “Gold is a crucial diversification given the various risks out there.”

The  European debt crisis and its uncertain effects on the markets have also pushed investors into gold. China this week pledged to help the region resolve its fiscal issues by investing in Europe’s bailout funds.

The  announcement drove the price of commodities – including gold – sharply higher. The Standard & Poor’s GSCI Spot Index of 24 raw materials rose to a six-month  high this week.

Paulson said in his year-end letter to investors that Greece could default by the end of the March, leading to a Eurozone breakup.

Governments  around the globe have already made big bets on the yellow metal, adding record  numbers to their stockpiles last year. According to the World Gold Council, the  world’s central banks increased gold purchases last year by 500% over what they  bought in 2010.

Record  investment drove gold demand to 4,067.1 tons last year, the most since 1997,  the World Gold Council estimates.

Gold ended the week $1,725.90 an ounce on the Comex division of the New York Mercantile Exchange.

Investors who agree now is the time to buy gold should review this report on how to buy gold coins.

Related ETFs: iShares Gold Trust (NYSEArca:IAU), ETFS Physical Swiss Gold Shares (NYSEArca:SGOL), SPDR Gold Trust (NYSEArca:GLD), iShares Silver Trust (NYSEArca:SLV),  Sprott Physical Gold Trust (NYSEArca:PHYS).

Written By Kerri Shannon From Money Morning

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