Soros sounds warning on gold rally

Emily Chasan and Herbert Lash

13:27 EST Wednesday, Sep 15, 2010 New York — Billionaire financier George Soros said Wednesday that gold prices may continue to rise after hitting record highs this week but he renewed a warning that gold is the “ultimate bubble.”

With economic and fiscal weakness crimping the developed world, Mr. Soros said all investments are at risk because “this is a period of great uncertainty so nothing is very safe.”

On gold, he said that after asset classes set new highs there are almost always immediate reversals that disappoint investors. Mr. Soros’ hedge fund, Soros Fund Management LLC, has been heavily invested in gold and gold-mining companies.

“Gold is the only actual bull market currently. It just made a new high yesterday. In the present circumstances that may continue,” he said at a Thomson Reuters Newsmaker event.

“I called gold the ultimate bubble, which means it may go higher. But it’s certainly not safe and it’s not going to last forever,” he said.

Mr. Soros in January at the World Economic Forum in Davos, Switzerland, made the ultimate bubble comment. He no longer is involved in management of his hedge fund.

Spot gold Tuesday hit a record $1,274.75 (U.S.) an ounce, and traded about $10 lower Wednesday.

As of June 30, the Soros fund held 5.24 million shares of the SPDR Gold Trust, a stake worth about $650-million on Tuesday. Soros was the third-largest fund in the exchange-traded fund at the end of the second quarter.

The Soros fund also held equity holdings in miners of gold and other minerals worth almost $250-million on June 30.

Mr. Soros, one of the world’s greatest investors, said he preferred some steady-earning blue-chip companies that throw off lots of cash over government debt.

Among other comments, he said he saw no sign of return to strong growth in the United States, which is struggling to emerge from its worst downturn since the Second World War.

“If I had to sum it up in one word, I would say: ‘blah.’ It may slip into double-dip [recession] or it may not, but it is going to slow down,” he said.

“There is no question in my mind because the stimulus is running out, and there is great resistance to any further stimulus.”

Mr. Soros said Japan did the right thing when it intervened in foreign exchange markets Wednesday to bring down the value of the yen – a move that lifted the U.S. dollar as much as 3 per cent.

“Certainly, they are hurting because the currency is too strong, so I think they are right to intervene,” Mr. Soros said.

Japan sold yen in the market for the first time since 2004 and said it would do so again to prevent the currency’s rise from hurting exporters and threatening a fragile economic recovery.

“They had a real estate boom and then a crash in banking ... It’s 20 years now, and they are still just struggling along,” Mr. Soros said.