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George Soros Disappointed in Gold

Written By Brian Hicks

Posted May 21, 2013

Last month, gold dropped about 12 percent. And just before the drop, George Soros of Soros Fund Management cut his holdings of gold ETFs.

His stake in the SPDR Gold Trust (NYSE: GLD), which he cut down to 530,900 shares, is worth about $82 million according to CNBC.

GOLD OUTLOOKCNBC quotes Soros’s interview with a Chinese newspaper, the South China Morning Post:

“When the euro was close to collapsing in the last year, actually gold went down, because if people needed to sell something, they could sell gold. Therefore they sold gold. So gold went down together with everything else. “Gold was destroyed as a safe haven, proved to be unsafe. Because of the disappointment, most people are reducing their holdings of gold.”

Intriguingly, just a week after these words were spoken, gold encountered its drop. In fact, it was the biggest drop in three decades.

Figures from the World Gold Council suggest that demand for gold is significantly lower this year. Q1 demand is down 19 percent from the same period last year. And the April price drop meant a lot of people flocked to buy it up at the low prices. That caused a sudden shortage of physical gold – refineries had to move to wait lists for promised deliveries.

As the Wall Street Journal notes, Soros had famously deemed gold “the ultimate asset bubble.” Over Q1, a total of some 180 metric tons of bullion exited gold ETFs.

Although demand for physical gold – jewelry, bars, and coins – was strong, the overall demand was down by 13 percent. The major ETF outflow accounted for most of the decline in physical reserves of gold.

Altogether, this means that nearly $42 billion in value has been wiped out from gold ETFs. GLD, the biggest gold ETF, saw its assets drop by 22 percent, with overall performance down 17 percent thus far in 2013.

What’s Bugging Gold?

The big question, of course, is what’s going on with gold. If Soros has it right and gold is indeed an asset bubble, then that bubble has popped, and we’re seeing the ensuing restructuring that must naturally happen in the markets.

Why would gold be an asset bubble, though?

For starters, gold has been considered a traditional safe haven. In times of financial stress, investors turn to gold because it retains its value and is not just currency that’s backed by, essentially, a government promise.

As the recent events in Cyprus have shown, governments and currencies can often run afoul of each other. Gold, on the other hand, is distinctly tangible.

But this has a double-edged effect. Just as gold holdings can be a source of reassurance and a bet against currency inflation and fluctuations, so also can they be the most attractive thing to sell when needed. Thus, as Soros pointed out in his interview, gold proved to be the best thing people could sell as the euro was in freefall last year. And that was an indication that gold can and will be sold just as eagerly as it is bought up.

Global Economic Uncertainty

The systemic crisis in the world’s economy isn’t nearly over. France has just entered a recession, joining a lengthy list of European nations. Japan has kickstarted a controversial easing program aimed to bring the nation out of the economic doldrums, and the U.S. is tottering along on an uncertain path to recovery.

Just recently, for example, the “housing recovery” was called into question when it became clear that a lot of the housing purchases are being made by investment houses and banks, which are hoping to snap homes up on the cheap and make a profit on them later on.

So it appears that gold as an asset bubble had reached its maximum limits (at least for this time around). Interestingly, at the same time that Soros reduced his stake in the SPRD Gold Trust, he seems to have bet on gold miners. His company bought 1.1 million shares in the Market Vectors Gold Miners ETF (NYSE: GDX). That makes a present holding amounting to 2.7 million shares, with a total worth of approximately $101 million. If Soros was right about the gold bubble, you should take your cue now.


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