John Paulson runs the largest gold fund on the planet and when gold stocks are ripping higher it is great for shareholders.
However, Paulson's investors are disappointed with his recent performance which includes dreadful bullish calls on Bank of America (NYSE:BAC) and SinoForest. Interestingly, BAC has doubled since Paulson no longer was a shareholder.
Over the past year, gold stocks have performed miserably. Even blue chip gold stocks like Newmont are down over 30% in the last six months.
Paulson was adding to his gold stocks in the last quarter. He added shares of:
Novagold Resources (NG)
Randgold Resources (NASDAQ:GOLD)
Iamgold Corp. (NYSE:IAG)
Barrick Gold Corp. (NYSE:ABX)
Agnico Eagle (NYSE:AEM)
International Tower Hill (THM)
Unfortunately, now that the investors want their money back, these companies' share prices are struggling. In order to meet redemptions, Paulson has to sell some stocks and his positions are relatively concentrated. Once Paulson sells, the share prices collapse further and there is more redemption pressure. In other words, shareholders of these gold stocks are subject to a spin cycle that Paulson finds himself in.
Other hedge funds have taken notice of this "bleeding" and most likely shorting these gold stocks knowing that it will increase redemption pressure at Paulson's funds.