Conditions Pretty Perfect for Gold for Now But Stay Cautious

Soros says condition ‘pretty perfect’ for gold

by Pav Jordan & Aaron Pressman

Billionaire investor George Soros may be cutting back on his gold bets, but he says the precious metal still has some kick to it, as long as conditions like low interest rates prevail.

“The conditions for [high] gold are pretty perfect,” he said at a speech in Toronto on Nov 15 to accept the Globalist of the Year award from the Canadian International Council. “The big negative is that too many people know this and a lot of hedge funds are very exposed…Gold has a tendency to go parabolic,” he said of its tendency to fall as quickly as it rises.

Soros reduced some of his big bets on gold in 3Q, trimming positions in miners including Barrick Gold Corp, Great Basin Gold and Newmont Mining. He left large positions in NovaGold Resources and Kinross Gold unchanged.

Soros has said several times this year that gold is “the ultimate bubble”. “I called gold the ultimate bubble, which means it may go higher,” Soros explained in September ar a Reuters Newsmaker event in New York. “But, it’s certainly not safe and it’s not going to last forever,”

Gold has risen sharply this year, with the SPDR trust up 23%. Spot gold hit a record of US$1,424.10 recently, without adjusting for inflation. Gold would still almost have to double in price to reach its 1980 record after including inflation.

Of late, the metal retreated from its record price on concern the market had become overbought as talk of a poetential interest rate rise in China knocked commodities sharply lower. Last quarter, as gold was approaching record highs, more of the best-known hedge fund managers were placing bets on the precious metal.

Former Goldman Sachs trader Chris Shumway’s fund added 2.1 million shares of the SPDR Gold trust and Dan Loeb’s Third Point LLC bought 115,000 shares in 3Q, according to securities filings on Nov 8. Highfields Capital added call options on 1.6 million shares of the gold exchange-traded fund and calls on 200,000 shares of the Market Vectors Gold Miners ETF. At the same time, Eric Mindich reduced his Eton Park Capital’s stake by two million shares to 4.6 million. John Paulson maintained a 31.5 million share holding of the ETF through the quarter. - Reuters

Source:

The Edge Singapore

Week of Nov 29 - Dec 5 '10