05/04/11 Baltimore, Maryland – Gold has shown more resilience this week. At last check, it’s still higher than it’s been anytime up until… hmm, let’s check the chart… two weeks ago.
Still, the known big buyers and sellers of the yellow metal are making for an interesting trading environment currently.
The gold price is being pulled down, for example, by news that George Soros is cleaning out some of his considerable position.
The trade hasn’t shown up in a 13-F filing — because that will be issued later this month — but The Wall Street Journal claims “the Soros fund has sold much of its gold and silver investments over the past month or so,” according to “someone close to the firm.”
As authoritative as that sounds, the story the WSJ tells is that Soros loaded up on gold to guard against a collapse in consumer demand after the crisis. Gold, the theory goes, would buy more if prices were falling. But now that the Fed has loosened the monetary spigots, and will keep dribbling even after QE2 wraps up in June, Soros does not fear “deflation” so much.
Likewise, if he’s selling his gold, he doesn’t think “inflation” is much of a threat either.
Alan Fournier of Pennant Capital is unloading some of his gold too, most likely to take profits as the market gets jittery near this false peak.
Meanwhile, John Paulson is happy to take the other side of the trade… which is helping keep a floor under gold.
The man who made his fortune shorting subprime told investors yesterday that lax monetary policy from the Fed, and the Bank of England, has him convinced gold will head to $4,000 an ounce over the next three-five years.
Mexico’s central bank added 93.3 metric tons of gold to its reserves in February and March.
We haven’t seen a number like this since November 2009, when India happily snapped up 200 metric tons of the International Monetary Fund’s gold stash. Most of the Mexican purchase — 78.5 metric tons — came in March, marking the single largest one-month accumulation by a central bank in 10 years, according to the World Gold Council.
Combined with steady purchases by China and Russia since 2003, the news “seems to confirm there’s an appetite now among emerging economies with large forex reserves to add to their gold reserves,” says Matthew Turner, precious metals strategist at Mitsubishi.
Central banks worldwide became net buyers of gold last year for the first time since 1988.
Using the government’s current CPI calculation, gold would be priced at $2,442 today. And using the government’s 1980 CPI methodology, we’d be looking at $8,331 — a tad more ambitious than John Paulson’s $4,000.
Addison Wiggin
for The Daily Reckoning
Addison Wiggin
Addison Wiggin is the executive publisher of Agora Financial, LLC, a fiercely independent economic forecasting and financial research firm. He’s the creator and editorial director of Agora Financial’s daily 5 Min. Forecast and editorial director of The Daily Reckoning. Wiggin is the founder of Agora Entertainment, executive producer and co-writer of I.O.U.S.A., which was nominated for the Grand Jury Prize at the 2008 Sundance Film Festival, the 2009 Critics Choice Award for Best Documentary Feature, and was also shortlisted for a 2009 Academy Award. He is the author of the companion book of the film I.O.U.S.A.and his second edition of The Demise of the Dollar… and Why it’s Even Better for Your Investments was just fully revised and updated. Wiggin is a three-time New York Times best-selling author whose work has been recognized by The New York Times Magazine, The Economist, Worth, The New York Times, The Washington Post as well as major network news programs. He also co-authored international bestsellers Financial Reckoning Day and Empire of Debt with Bill Bonner.
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I wouldn’t trust anything coming from the Soros camp.
I’m with the Bobster on Soros. Not that I don’t agree with Soros, I do agree politically in many areas. But even if he did unload his position in metal, that hardly makes him infallible. I think old George blew the call on this one.
do you think he actually unloaded it?
How to choose in between lax money and wild-fire unemployment plus unfathomable default?
Fingers normally point to ‘lax’ if desire calls to remain in office and to create a serene economic weather. And, forget the climate if miracle doesn’t befall.
Ok, even if Soros DID sell, he’s just manipulating the market, expecting his action will drive prices down, so he can buy some more. He’s not an idiot, he knows what’s going on, and he is a net buyer of gold in the proverbial “end of the day”, even if it looks like he’s selling by noon.
Imagine this: You’re Soros, so you know that you are closely watched, and every move you make influence markets immensely, if not by your reputation, then by the sheer size of such movements. You know gold is a sure bet, but if you keep loading up on it, prices will go up, and other investments of yours (counter-gold-like) will suffer, for various and obvious reasons. the last thing you want is to be called a gold bug.
So you sell some, have an “insider” “leak” information (note the irony), possibly making it look much bigger than it is, and conveniently before any coming 13-f filling. Then you take that cash, do a carry trade of some sort (name your favorite), wait for gold to go down as you would expect, and then buy all your previous position, plus a little more, which is guaranteed to take the metal to, at least, the previous value. So you make some money in the carry trade, you get another chance to buy at a “discount”, you make money in your gold position again, you don’t look like a gold bug/doomsdayer (which could hurt his other positions), and basically you fool everyone else.
When you’re as big as Soros, the line between con man and investor becomes somewhat blurred.
I’d love to see counter arguments to this scenario.