The gold bears are growling. This time they have been joined by Bloomberg.com, which titles a piece on gold, apropos of no breaking news, with the slanted headline of Soros Signals Gold Bubble as Goldman Predicts Record.
The obvious take-home message for those who read only the headline is that Goldman is getting people into gold at the top. The first paragraph continues that message:
George Soros is helping drive up gold prices by doubling his bet in a market even he considers a “bubble” as Goldman Sachs Group Inc., Barclays Capital and HSBC Holdings Plc predict more gains before it bursts.
If you read "below the fold" on the computer screen by scrolling down, however, here is Soros' actual position:
“When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment,” Soros said at the World Economic Forum’s annual meeting in Davos, Switzerland, in January. “The ultimate asset bubble is gold,” he said.
In a Jan. 28 Bloomberg Television interview, the 79-year- old billionaire recalled that former Federal Reserve Chairman Alan Greenspan warned of “irrational exuberance” in financial markets three years before the technology bubble burst in 2000. The Standard & Poor’s 500 Index rose 89 percent in the period. Buying at the start of a bubble is “rational,” Soros said.
The article then goes on to show that Soros has been joined by independent stars of the hedge fund industry, whose own money is at risk in the positions of the fund:
Gold’s fourfold rally since the end of 2000 has also attracted money managers John Paulson, Paul Tudor Jones and David Einhorn. Paulson’s Credit Opportunities Fund soared almost sixfold in 2007 by betting that subprime mortgages would plummet. Einhorn said in October that his Greenlight Capital Inc. bought gold to bet against the dollar.
‘Just an Asset’
Tudor Investment Corp., based in Greenwich, Connecticut, increased its stake in Newmont Mining Corp., the largest U.S. gold producer, almost fourfold in the final quarter of 2009. Gold is “just an asset that, like everything else in life, has its time and place. And now is that time,” Paul Tudor Jones said in an October letter to clients.
Soros, Jones and the unquoted Paulson and Einhorn do not do what Goldman did with CDOs, which is sell one thing to the bagholder and then bet against it. Will they be correct? That's of course another story. I am personally long gold, because I do not trust the promises of the authorities who deal in electronically-created and printing press "money". I hope gold does poorly and the real economy does great for years to come, with real wealth creation so that gold can become a barbarous relic indeed. But one needs to invest with one's head as well as one's heart. My head says that a Federal government with about $2 T in revenues and uncountably large promises to pay its debtholders and especially its own retirees and poor is leverage at least as much as were Bear Stearns and Lehman Brothers and nearly as much as Fannie and Freddie.
The structural bull market that the price of gold has traced out-- a fact not a prediction-- and the growing number of top-tier investors as described in the Bloomberg article-- and the out-of-nowhere transparent effort by Bloomberg to assist the gold bears-- all suggest to me that the gold bulls are aligned with the major trend, whether or not ultimately the price of gold will ultimately crash and thus could be bought at today's price some years in the future.
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