After 15 Years, John Paulson Is Finally Winning Big on Gold

By Caitlin McCabe and Joe Wallace

John Paulson made a vast fortune betting against the U.S. housing market in what was dubbed "the greatest trade ever." And his next act — a yearslong wager on gold — is finally turning out to be a another great trade.

More than a decade and a half after Paulson went big on gold, the billionaire investor has emerged as one of the winners from the record-setting surge in the price of the precious metal.

President Trump's trade war and threats to fire the head of the Federal Reserve shook confidence in the dollar and propelled gold prices above $3,500 a troy ounce last week. Gold rose this year even as stocks and bonds floundered.

Rather than cashing out, Paulson is doubling down, tossing in $800 million to buy a big stake in a remote gold mine in a rugged region of southwestern Alaska.

"There's only one reserve that in physical form will protect you against all these things for literally millennia," said Paulson, rattling off a list of scenarios ranging from inflation to the confiscation of assets by governments.

Gold has been prized at least as far back as ancient Egypt, where King Tut was buried with a golden mask. It functioned for a long time as the bedrock of the monetary system. While President Richard Nixon unpegged the dollar from gold in 1971, tons of the metal still sit at Fort Knox and in central-bank reserves globally.

Survivalists and big money managers alike assert that gold is a proven hedge against various shocks: inflation, war, catastrophe and currency devaluation. Most of those crises aren't currently materializing in the U.S. But global geopolitical tensions, combined with a sliding dollar and expectations that central banks will keep buying the metal, have strengthened Paulson's conviction in bullion.

Owning gold isn't always a winner. It costs money to store and doesn't pay interest, as bonds do. And there have been long stretches during which stocks and bonds have left gold in the dust.

Paulson became a gold believer when he was relishing the riches of his bet that the U.S. housing market would collapse. His hedge-fund firm had just made $15 billion in 2007, with Paulson's personal cut amounting to nearly $4 billion — equivalent to more than $10 million a day.

The Fed had embarked on quantitative easing in response to the 2008-09 financial crisis, and Paulson worried the program would lead to a surge of inflation.

He piled into gold when it traded at around $900 a troy ounce. His early bets paid off. He at one point offered investors gold-denominated versions of his hedge-fund strategies.

But Paulson's expectation of an inflation burst never materialized, and parts of his wagers — including bets on mining stocks — suffered. Investments in other sectors, such as pharmaceutical companies and bank stocks, also dragged on returns.

He converted his hedge-fund firm into a private investment manager in 2020, handling money for himself, his employees and related entities.

In the years since, he became entangled in a bitter legal dispute with a former employee whom he fired in Puerto Rico, hosted a fundraiser for Trump at his Florida mansion and was briefly considered to be in the running for Treasury secretary.

Gold eventually started to glitter again, burnished by Covid-era stimulus, inflation, war and sanctions.

Paulson doesn't disclose the entirety of his gold holdings. He has exposure to the metal through derivatives positions, he said, but mostly invests through miners. He doesn't own physical gold.

His investments in listed mining companies are valued at around $840 million, according to Marcelo Kim, a partner at Paulson's investment firm who oversees gold investments. All eight of the mining stocks he reported holding to U.S. regulators as of December are up this year — with many of them increasing more than 30%.

As Paulson sees it, miners' profits increase — sometimes several times over — as gold prices rise, while the costs of mining remain relatively fixed. He still sees room for profit even if the metal's price retreats.

Most of his current bets are on upstart miners. Through his private investment firm, Paulson & Co., he owns stakes in companies including Perpetua Resources, Agnico Eagle Mines and International Tower Hill Mines.

"We really shifted our focus to mine development because that's where you can get your biggest bang for the buck," Paulson said. "You don't need the gold price to go up to receive high returns."

Kim has visited some 150 mines in Africa, Australia, Asia, Europe and North America, including the gold deposit in Alaska that Paulson agreed to invest in last week.

To buy the stake in the Alaskan mine, Paulson teamed up with fellow a gold advocate, Thomas Kaplan, chair of the exploration company NovaGold Resources. They purchased Barrick Gold's 50% stake in the Donlin project in Alaska for $1 billion. Paulson's $800 million contribution gives him a 40% stake in the mine.

Paulson is looking at what he believes will be a windfall at Donlin: The undeveloped high-grade deposit contains an estimated 39 million ounces of gold, equivalent to about a quarter of the holdings at Fort Knox.

It is a big undertaking . A 2021 technical report suggested that capital costs would be about $7.4 billion, plus $1.7 billion over the mine's life.

A 30-mile road to the nearest port and a natural-gas pipeline might need to be built, according to the Alaskan natural-resource department. The closest population center to the mine site, which sits on native lands, is a tiny village called Crooked Creek. Industry players said even if everything goes to plan, the mine isn't likely to start producing gold until the early 2030s.

"This is going to be a monster asset that's going to last for 50 years plus," Paulson said.

Write to Caitlin McCabe at caitlin.mccabe@wsj.com and Joe Wallace at joe.wallace@wsj.com