Story Published:
Feb 24, 2010 at 11:43 AM CST
Story Updated:
Feb 24, 2010 at 3:36 PM CST
Last month, at the World Economic Forum in Davos, Switzerland, Soros declared that gold is “the ultimate bubble”. Fears quickly spread that gold would tumble and tumble it did!
Who is George Soros?
He is the “Ultimate Sly Fox” who has outwitted governments before. In 1992 he made more than a billion dollars by short-selling the pound sterling, as the UK government was eventually forced to withdraw the pound from the European Exchange Rate Mechanism.
So when he speaks, the sheep listen. Numerous writers, inept fund managers and unsophisticated investors worked themselves into a frenzy. Many sold and within a week gold was trading down to levels last seen in October, almost $1,050 an ounce.
But one astute investor, it seems, was buying… George Soros...
Shortly after his “ultimate bubble” quote hit the headlines, it appears that George Soros has actually more than doubled his investment in gold.
He now owns some 6.2 million shares in the US-listed gold exchange traded fund, SPDR Gold Trust (US: GLD), worth some $680million. His investment vehicle, Soros Fund Management also increased its holding in the Canadian gold miner Yamana (NYSE AUY) .
If you are buying something, you want to get it for the cheapest possible price. If you are selling something, you want to get the most money for it. So an old market trick – and I am not for a second saying Soros was doing this – is, if you are buying, to talk a market down, and if you are selling, to talk it up.
Why has the IMF announced it's selling its gold?
You have to wonder why the International Monetary Fund (IMF) has told everyone that it’s about to sell 191 tons of gold. The IMF is purportedly raising funds for its operations to help near-bankrupt countries. So it should want to get the highest price possible for its gold.
Yet – in announcing the sale beforehand (There are probably all sorts of regulations saying it should) – it is doing precisely the opposite of what a shrewd player, such as Soros, would do.
Either it is making the kind of blunder that is typical of large, non-profit state bodies, or it is deliberately trying to knock the price down, as the
Gold Anti-Trust Action Committee (GATA) would have us believe. The GATA suggests that the IMF doesn’t even have the gold to sell. “Where is it stored?” they ask, not unreasonably.
But despite GATA’s compelling reasons , incompetence is a more likely explanation.
Should we be worried about our gold?
Let’s take a look again at what Soros actually said in his “bubble” speech. First he said: “When interest rates are low we have conditions for asset bubbles to develop.” The past decade or so of rate-slashing and serial bubble-blowing by central banks has proved this point beyond doubt.
Soros continues: “they [asset bubbles] are developing at the moment. The ultimate asset bubble is gold.” Policy-makers are using exactly the same methods to get us out of this crisis as they used after the dotcom bust. But they are running out of bubbles to blow.
Gold is about the only one left.
What did Soros mean by “ultimate”. Particularly as he later added that when he sees a bubble, “I rush out and buy”. It seems that’s just what he has done.
And why wouldn’t he?
Gold is a particularly appealing investment, given that cash is being debased and pays no decent interest. This bull market is almost ten years old now.. We are far from the blow-off top, when the public and major brokerage firms start putting out buy recommendations, that usually characterizes the end of a bull market.
Soros seems to view things the same way. And even if you think his comments on gold were bearish, it’s still probably best to do as he does, not as he says.
You just need to look at the recent history of central bank and IMF gold sales to see why. When the IMF, which is the world’s third-largest gold holder behind the US and Germany, sold its last tranche of 200 tons (to India), the gold price quickly moved up 15% from $1,040 to over $1,200.
Looking at the bigger picture, since Gordon Brown’s bottom-marking sale in 1999, the following decade has seen the greatest selling of central bank and IMF gold in history while the gold price has soared to record highs.
Bob Tonachio, CEO of Robert James & Associates, Inc. may be contactedat 1-800-530-5700.
His firm charges no fees for advice and consultations are always confidential and free of charge. www.robertjames.us is an educational web site with live gold and silver trading 24 hours per day.
