By Gregory Zuckerman, The Wall Street Journal

It took John Paulson months to convince investors that housing would crumble.

Now it’s taking him a while to get them excited about gold, his latest passion.

When Mr. Paulson’s Paulson & Co. late last year announced it was starting a hedge fund to make a big gold bet, many on Wall Street expected investors to line up. Paulson & Co. scored about $20 billion in profits in 2007 and 2008 wagering against subprime mortgages and financial companies. It then bought financial shares last year to add more gains.

Some gold traders expected Mr. Paulson’s new fund, launched Jan. 1, to raise billions of dollars and even help push gold higher when it started buying this year.

That hasn’t happened. Despite months of investor meetings, Mr. Paulson has raised $90 million or so for his new gold fund, according to people close to the matter. Even the $250 million that Mr. Paulson himself placed in the fund hasn’t persuaded many investors to get on board.

The fund, despite gains this month that bucked a selloff for gold, has lost about 10% since it was launched, investors say. That’s making it that much harder for Mr. Paulson to convince clients.

“I am a long-term believer in inflation, but I feel the weakness in the economy in the short run will trump the longer-term story” for gold, says Christopher Zook, who at CAZ Investments LP invests about $150 million in hedge funds.

Mr. Zook considered but decided not to invest in the gold fund for now. “It’s purely my negative view on gold in the short run,” he said. “I just am waiting for hopefully a better entry point.”

The disappointing response may be a sign that investors are becoming more cautious about the yellow metal, which has declined about 1.7% this year, though it has risen this week.

Shares of AngloGold Ashanti Ltd., one of Paulson & Co.’s biggest gold-mining bets, have fallen to about $37 from nearly $47 in early December.

Mr. Paulson has told his investors he expects his new fund to outperform gold prices as they rise. That suggests it also could do worse than the market if the dollar continues to rally, pushing gold down further.

read more

David Shvartsman submits:

It’s been a big week for the cottage industry of John Paulson-watching.

The Paulson & Co. fund manager is set to launch a dedicated gold and gold mining equity-focused fund at the start of next year, in which he’ll invest $250 million of his own money.

You may recall that Paulson’s earlier forays into gold ignited a new rush into gold by hedge funds and investors piggybacking on the trades of sophisticated hedge fund managers. JP’s new fund signals his continued positive outlook for the precious metals sector over the intermediate to long-term.

That’s not all that’s happening in the world of John Paulson. Investors have pored over his firm’s recent 13-F filing and letter to investors, while hiscomments on Bank of America (BAC) (Paulson & Co.’s largest position in the financials sector) have fueled publicity over a divergence of opinion with bank analyst Meredith Whitney on the stock’s outlook.

Read more »