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George Soros,
the billionaire founder of Soros Fund Management LLC, sold most of his holdings
in the bullion-backed SPDR Gold Trust and iShares
Gold Trust funds in the first quarter, while buying shares of mining
companies Goldcorp Inc. and Freeport-McMoRan Copper & Gold Inc.
Soros’s fund held 49,400 shares of SPDR Gold Trust as of March 31,
compared with 4.721 million at the end of the fourth quarter. The New
York-based fund sold all 5 million shares it held in iShares
Gold Trust. This amounted to roughly 30 tonnes
worth of physical gold held through the custodians, Barclays and HSBC.
Does this mean that he has disposed of
the gold holdings he has? Does it mean he is now bearish on gold? After all,
it was reported that he bought gold because of his fear of deflation. Does he
think that this possibility has now receded? None of the above, for it turns
out that he continues to have large allocations to gold investments through
owning more gold mining shares and a gold mining ETF. Soros’ fund added
Eldorado Gold, Freeport-McMoran Cooper & Gold
and Goldcorp to their investments during Q1 2011. Soros bought 301,300 shares
of Freeport-McMoRan and 7,600 of Goldcorp. These shares will benefit directly
from a long-term appreciation of the gold price through their cash flow from
ongoing gold sales. Shareholders will then enjoy the rising capital value of
the shares alongside the dividend stream flowing from the sales of gold.
Consider for one moment that the U.S.
government was contemplating confiscating physical gold from U.S. citizens
and even the flow of gold from gold mining. It would be an easy, one-off
exercise to instruct all gold Custodians in the U.S. to hand over their gold
to the government, including the custodians of the SPDR Gold ETF and the Gold
Trust. With gold shares, all the government could do, would be to instruct
gold miners to sell their newly mined gold directly to them. George Soros
would then benefit from the continuing operations of these gold companies and
their cash flows. We don’t know if this was why the switch is being
made, but it would certainly make sense if it were.
Paulson & PIMCO
What of the other leading investment
lights who are in gold or who have mentioned it in the last few weeks.
Investor Paulson is holding onto his massive holding of shares in the SPDR
Gold Trust and has added to stakes in mining companies including
Johannesburg-based AngloGold Ashanti Ltd. His fund bought 97,540 American
depositary receipts in South Africa’s biggest gold producer last
quarter, as well as 2 million ADRs in Gold Fields Ltd., its second-largest
producer.
Paulson did not invest for fear of deflation but for fear of inflation that
should attend a global economic recovery. Paulson’s investors can
choose to have their stakes denominated in gold rather than dollars, meaning
the value of their investment rises and falls with the price of the bullion.
This really is confidence in gold. The head of PIMCO whose fund is shorting U.S.
Treasuries at the moment respects gold’s wealth preserving properties
while he has little confidence in U.S. government debt. This opinion is very
close to our own.
What are the prospects
for the Gold & Silver Markets
George Soros reportedly bought gold
because he feared deflation Paulson has it because he fears inflation. PIMCO
respects it because they have no confidence in U.S. Treasuries [plus other
reasons]. We expect that the future holds the currency-cheapening inflation,
the socially-destructive ‘stagflation’, the economy-destructive
deflation plus we see the irresistible tendency in banking and politics to
over-issue paper currencies. One or more of these potential, probable, future
scenes lie ahead and the entire investing world is aware of these dangers.
Even central banks are recognizing the benefits of gold in their reserves. Has this changed? No, not at all!
Should we include silver alongside gold
after a drop from $50 to $34? We are of the opinion that silver will continue
to be more volatile than gold, but will move in tandem with it, but with more
exaggerated movements. The silver market is nowhere near a reserve asset in
the eyes of the world’s central banks and has a long road to travel
before it is. However, it has moved with gold for years now and will
eventually complete that journey. In the minds of the poorer investor it does
stand as financial security for him, which is the very essence of
gold’s qualities. A look back on the road it has come so far shows that
it has proven to be a wealth preserver, despite its volatility and lack of
liquidity for the large investors. It took only 1,000 tones of silver to be
sold over two weeks to drop the price from $50 to $35. Until that liquidity
improves [it will at higher prices and broader demand] silver will remain
volatile and less dependable than gold in its price performance. We believe
it is and will be a wealth-preserving, precious metal in the future, sought
after by global investors, particularly Asian investors.
Gold markets need no further confirmation
of the need for them to be a support, if tacit, to global monetary systems.
In extreme times gold is money and a far more effective value preserver than
paper currencies. Since 1971 the world has experimented with paper
currencies. These experiments have not led to the success they should have as
money. The issues we mention above as well as the dangers of linking money to
one nation in a global world are visible for all to see. We believe these
dangers will force central banks and governments to accept precious metals as
part of the monetary system again but in full [not simply as an important
reserve asset]. Gold will serve to a level far beyond its price, as
collateral in inter-governmental transactions [if they are not already doing
so through the Bank of International Settlements] in the future.
In the future, this leaves first, the
gold market, eventually returning to the control of global governments [first
through the control of supplies] and wealthy institutions and individuals,
likely at prices beyond the reach of the average investor. Secondly, silver
will, we feel, step into the breach left by gold for the individual but still
at a more affordable level.
Subscribe through www.GoldForecaster.com and
www.SilverForecaster.com
Julian D. W. Phillips
Gold/Silver
Forecaster – Global Watch
GoldForecaster.com
Is your wealth effectively structured to avoid the pernicious effects
of the regulatory climate that we have moved into? It should be and we can
help you to do so professionally and within the law. Please contact us for
any help regarding this at: gold-authenticmoney@iafrica.com.
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