"Paulson, 56, said during a call with investors that he is also buying credit-default swaps on European debt, or protection against the chance of default, said the person, who asked not to be identified because the information is private. Spanish banks are of particular concern as their holdings of the country’s debt and client withdrawals make them overly dependent on European Central Bank financing, Paulson told investors."
Yields on Spanish debt have soared in the last few weeks and are now north of 6%.
Paulson also appears to favor gold over other investment opportunities right now.
"Paulson said he took a portion of his own money out of the $6.8 billion Credit Opportunities Fund and put it into the $1.2 billion Gold Fund, which can buy derivatives and other gold- related investments, and the $8.3 billion Advantage funds, which seek to profit from corporate events such as takeovers and bankruptcies, according to the person and a year-end letter that the firm sent to investors."
Gold stocks are inexpensive relative to the price of gold. Currently, the ratio between gold and the XAU index are at levels not seen in the last decade.