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What Does George Soros Really Think of Gold?


All investments have their day, and right now gold is having its day.

Since December 2009, gold bears have had a ray of hope as gold has corrected (as all bull markets do), and now the bears are keying in on a headline from George Soros today: Gold is the "Ultimate Bubble".

Now, everybody is entitled to an opinion, and as always there are smart people on both sides of this issue. That's what makes a market.

Nevertheless, when you actually read beyond the headline to what Soros actually said, it's not as "negative" about gold as you might think.

Soros said, "When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment. The ultimate asset bubble is gold."

Putting it a little differently, what he's basically saying is that with interest rates as low as they are and central banks printing money, it makes the paper "money" worth less relative to assets that are in shorter supply. It's why I've always said that the ultimate "bubble" is in the dollar, and it is that bubble that has made all prior bubbles possible (first the stock bubble and then the housing bubble).

Today, with no asset bubbles left to blow, money printing will now simply lead to commodity inflation, and as Soros says (but put slightly differently), the ultimate store of value against debasement of paper money is in fact gold. It's why central banks hold gold as a reserve asset after all. And in fact, gold is the only reserve asset of any size that the Federal Reserve holds (for obvious reasons).

Additionally, with respect to Soros, it may surprise gold's sworn enemies that are looking to Soros now for support in their quest to bash gold, but the gold ETF (GLD) is the fourth-largest single position at Soros Fund Management.

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Soros Fund Management also happens to be the 12th largest overall holder of the GLD ETF, too, behind other well-known smart investors.

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Now, this SEC filing is obviously as of September 30, 2009, but if Soros was long gold at roughly $1000 (where it was at the end of the third quarter), do you really think he sold it after a mere 20% move to $1200 two months later because he considered that 20% too "bubbly"? I doubt it.

All investments have their day, and right now gold is having its day. Will that always be the case? Of course not, but just as "equities" had their day from 1982 to 2000, gold is now enjoying its ninth year of its secular bull market. Some day it will peak, or more accurately, paper currencies will stop falling against gold as central banks (specifically the Fed) restore credibility to the paper currencies they have trashed through years of reckless money printing (specifically Alan Greenspan). I actually look forward to that day believe it or not.

But for now, the dollar and other fiat currencies continue to collapse against gold. Until central banks begin to act responsibly again, that trend is going to continue. Unfortunately, with the global economy so warped by 20 years of reckless central banking by the Greenspan Fed, social pressures now prevent such responsible banking at the moment. Soros obviously understands this logic as well, based on how he's positioned.

For more on GLD and other ETFs, take a FREE 14 day trial to our Grail ETF & Equity Investor newsletter by Ron Coby & Denny Lamson. They find ETFs poised for big moves. Learn more.
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