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Is Soros buying gold ready for the ‘ultimate bubble’?

with 4 comments

Given the moves by rival hedge fund managers like John Paulson into the yellow metal, it would be surprising if that living trading legend George Soros is not buying gold at the moment.

Indeed, you should always buy when this man hints he might be selling. His comments at the World Economic Forum in Davos this week seem classic trader double-speak. What does Soros mean when he says gold is the ‘ultimate bubble’ asset class?

False prophets

Newspapers like the normally sensible Daily Telegraph fell for his ruse, immediately jumping the gun to a prediction about a massive tumble for the yellow metal. Yet Soros said no such thing.

He merely pointed out what even the most ardent gold bug would concede. Namely that if you study the history of financial crises then the credit-induced asset price inflation that causes them moves from one asset class to another until it reaches gold as the ‘ultimate bubble’ or the last of the bubbles.

Soros did not say that we are nearing that position with gold around $1,080, having last month touched $1,226 an ounce. What he did create was a buying opportunity, presumably for funds controlled by himself.

For why should gold be running out of steam at this point? Even if credit growth slows the gold market is still so small that only the tiniest fraction of this money is required to send the price much higher.

Trader talk

Soros knows that. He also knows that gold prices show no sign of the parabolic spike that we saw in oil prices in July 2008. Surely the next most obvious spike will be in bond prices – when the current stock market sell off really gets moving.

Only after the bond bubble has blown up will gold become a candidate for the next bubble, and given the relative sizes of the bond market and the gold market that could be one humdinger of an ‘ultimate bubble’.

Soros is playing his own book in Davos. Gold investors should not be alarmed but take some delight in what he is saying.

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Written by Peter Cooper

January 29, 2010 at 10:34 am

4 Responses

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  1. Soros can be like the Oracle at Delphi. Even when he’s telling the truth, you may not understand what he is saying.

    gm

    February 2, 2010 at 11:45 am

  2. Peter , good series of articles on oil on ‘Seeking Alpha’ web site. They have finally figured out what will happen when very high oil prices destroy demand for a whole lot of other stuff. $147 might be ‘cheap oil’ in 3 years.

    Bill Simpson in Slidell

    January 30, 2010 at 4:48 am

  3. Yesterday was an excellent opportunity to load up on more gold and silver mining stocks. The “very good” ones have corrected by about 20%.

    I’m ready for a new surge over the next few months.

    Ed Note: suicidal move if the market is going down, which it is.

    obewon

    January 29, 2010 at 11:14 pm

  4. Wait till the bank tax passes lol. Once that passes financials will correct big time.

    http://www.latimes.com/news/local/la-me-traffic-fines29-2010jan29,0,7367714.story?track=rss

    Andy

    January 29, 2010 at 4:14 pm


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