What Does George Soros Really Think of Gold?
All investments have their day, and right now gold is having its day.
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.
Click to enlarge
Soros Fund Management also happens to be the 12th largest overall holder of the GLD ETF, too, behind other well-known smart investors.
Click to enlarge
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.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter