I’ve been in the process of moving to Southern California and will be posting more soon. I wanted to give some thoughts to ponder on what billionaire George Soros is saying about gold now being the “ultimate bubble.”
Listen to interview here and notice that it’s your typical biased CNBC journalist asking the question (I will be exposing CNBC’s bias in an upcoming article):
Davos 2010: George Soros warns gold is now the ‘ultimate bubble’
Is Gold in a Bubble?
While I have been telling traders to look at trading gold in EURO’s since November, one must understand that the Dollar Index wasn’t breaking it’s March 2008 lows while gold was breaking to new highs. This should have thrown caution to those who were long U.S. dollar gold.
But to answer the question, gold isn’t in any type of bubble. Sure, it could fall to $700 or lower on its way to $2,000 and higher, but a holder of physical gold doesn’t worry about this type of fluctuation. A holder of physical gold possesses it as insurance against any type of U.S. Dollar collapse ala some sort of Iceland debacle.
But more importantly one must understand that gold is just a shiny rock. How can a shiny rock be in a bubble? It is what the shiny rock is priced in that matters. For U.S. Dollar gold to be in a bubble, this would have to mean the U.S. Dollar is going to get stronger. Much stronger.
If U.S. Dollar gold is an “ultimate bubble” as Soros claims then it must also be true that the U.S. Dollar has bottomed out. Nothing could be further from the truth. Soros knows this more than anyone. After all, he is an expert on currencies.
U.S. Dollar Strength vs. Weakness
The U.S. Dollar is presently in an uptrend. As mentioned earlier, the Dollar Index never broke its March 2008 lows while gold was breaking to new highs. While the Mish Shedlocks of the world battle with the Gary North’s of the world on the deflation/inflation debate, what concerns me is the price action of the Dollar Index. The last 10 years the Dollar Index and Gold have been inverse to each other.
Understanding the economics of what is to come is where the Austrians will win out in the long run. Higher inflation, interest rates and a weaker dollar are the future. This doesn’t mean that there won’t be some short term deflationary price action for the U.S. dollar. But the government spending aspect to GDP is all that is really keeping the game going, and of course this is inflationary, and more importantly, temporary. The timing of the “when” is all that matters. No one will be able to predict the exact moment the dollar will start it’s final move below the March 2008 lows, but it will come. And when it does, gold will be breaking to new highs.
The Two Faces of George Soros
In January of 2008, Soros said; “Dollar’s Golden Era Is Ending” – just a bit before the dollar rebounded.
In April of 2009, Soros said; “Dollar will remain world’s go to currency” just before the dollar fell off the cliff (Geithner was saying the same thing earlier in the year).
Today, Soros is saying “Gold is ultimate bubble.”
While Soros may have had great timing in buying $663 million of the gold ETF shares, it is unknown whether or not his hedge fund still holds them until the next quarterly report comes out.
But that is irrelevant to me. Listening to this man speak is one thing. Trading on the opposite of what he says is another.
So while gold may have a three month fall and Soros will be shown to be right on his call (my speculation), he will be buying gold via his hedge fund. I’m sure he has his PUTS in play as we speak. Will take his profit. Then back up the truck. Then say everyone needs to be in gold. Then sell and lock in profit all while gold is breaking to new U.S. Dollar highs.
Soros could give a hoot about gold. He just knows how to manipulate the masses via his words, and trade accordingly. Profit is all he cares about.
Doug Eberhardt is a 28 year financial services veteran and precious metals broker selling gold and silver at 1% over wholesale cost. Doug has written a book to help investors understand how gold and silver fit into a diversified portfolio, how to buy gold and silver, and what metals to buy. The book; “Buy Gold and Silver Safely” is available by clicking here Contact phone number for Buy Gold and Silver Safely is 888-604-6534
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