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Elliott Tells Clients Money-Losing Gold Still Best Value

Elliott Management President Paul Singer
“There is only one store of value and medium of exchange that has stood the test of time as ‘real money’: gold. We expect this dynamic to assert itself in a large way at some point, ” Elliott Management Corp. President Paul Singer. said Photographer: Jacob Kepler/Bloomberg

Gold remains the best store of value in an uncertain global economy, Elliott Management Corp. told clients even as the $21.8 billion hedge-fund firm founded by Paul Singer lost money on its bullion position this year.

“Although our gold position lost money in the quarter and afterward, we remain unconvinced that anything resembling a genuine normalization of global economic and financial conditions has been achieved,” Elliott said in an addendum accompanying a first-quarter letter to investors. “There is only one store of value and medium of exchange that has stood the test of time as ‘real money’: gold. We expect this dynamic to assert itself in a large way at some point.”

Singer’s firm joins John Paulson’s Paulson & Co. in sticking with gold after bullion tumbled into a bear market in April. Both say that gold will rally because governments have too much debt and are printing money on an unprecedented scale. Paulson, whose Gold Fund declined 28 percent in the first quarter, told clients last month that purchases by central banks and demand in Asia will support the metal in the near term.

Even with the gold losses, the firm’s Elliott International Ltd. fund rose 3.1 percent last quarter, it said in the April 25 letter, a copy of which was obtained by Bloomberg. Peter Truell, a spokesman, declined to comment on the letter and addendum.

Real Solution

Elliott, which is based in New York, said that gold will rebound as governments haven’t found a real solution to reduce the debt they have accumulated. This week, the U.S. Federal Reserve maintained its $85 billion a month of bond purchases, while the European Central Bank cut borrowing costs to a record.

Gold for immediate delivery traded at $1,477.95 an ounce at 4:33 p.m. in Singapore, down 12 percent in 2013 after a run of twelve annual gains. Spot prices plunged to $1,321.95 on April 16, a two-year low, as exchange-traded product holdings slumped amid speculation that the Fed will taper its stimulus program.

“It is quite frustrating to watch the price of gold fall as the conditions that should cause it to appreciate seem more and more prevalent,” Elliott wrote in the letter. “Gold may not exactly be a ‘safe haven’ in the sense of an asset whose value is precisely known and stable. But it surely is an asset that, in a particular set of circumstances, becomes a unique and irreplaceable ‘must-have.’”

Elliott’s gold position also lost money in the final three months of last year, after three quarters of essentially flat performance, the hedge fund told clients in January. The metal may be “rediscovered” as a necessary investment, it said then.

Gold will close the year at $1,550, 7.5 percent less than at the end of 2012 and the biggest drop since 1997, according to the median of 38 estimates compiled by Bloomberg. Investors are selling bullion held in ETPs at a record pace, while hedge funds have accumulated their second-biggest bearish bet ever.

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