Soros and Gold

Last week, the media reported that George Soros was getting out of gold. What does it mean for the precious metals market?

The media often inform about investment decision of great investors, such as Warren Buffet, George Soros, John Paulson, Stanley Druckenmiller and others. For example, the Wall Street Journal revealed that Soros Fund Management sold the majority of its shares in the world’s largest gold producer, Barrick Gold, and its entire stake in the mining company Silver Wheaton. The article suggests that Soros calls a top in gold by this decision. Is it true? It could be the case, but doesn’t have to be.

First, technically speaking, he cut his positions in gold stocks, not bullion itself. Gold stocks have only indirect exposure to movements in the price of gold and are associated with many risks absent in the bullion market. Perhaps, Soros noticed some company-specific weaknesses in Barrick. Investors should remember that the billionaire remained bearish on the stock market. In other words, it is hardly to assess the reasons behind market transactions. Profit taking is a normal activity in the precious metals market.

Second, investors should never blindly follow anyone into anything. Surely, studying the portfolios of top hedge funds may be a good way to learn from the best investors. However, blindly imitating financial guru’s moves is a terrible idea for many reasons. Soros and other professional investors have several billion dollars, so their portfolios and accompanying investments strategies may be different. Importantly, you never know what they are going to do next. Maybe Soros just sold Barrick’s shares to invest in other mining companies or gold itself in the future? Yes, actually he bought 240,000 shares of the SPDR Gold Trust at the same time. Maybe Soros exited his positions in GLD as well and made a big over the counter bet on lower gold prices before the next reporting period? Another problem is that such large fish inherently move the market, so if you follow them you will probably pay more and sell for less. And, hey, they also make mistakes. Last but not least, different legendary investors may adopt distinct approaches. Soros cut his exposure to gold and silver, but John Paulson maintained his holdings in the SPDR Gold Trust while Jacob Rothschild, chairman of London-based RIT Capital Partners, increased exposure to gold and precious metals by 8 percent by the end of June. Who should the investors listen to?

The take-home message is that last week the media reported that George Soros was getting out of gold. It may be an important signal, but it does not have to be one. Our point is that investors should never buy or sell gold blindly just because someone else did it. Instead, investor should always do their own research, considering both technical and fundamental factors.

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Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.

Thank you.

Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor

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