Soros the Latest Billionaire to Jump on the Gold Bandwagon

What started as a defiant gold-investing trio has morphed into an elite hedge-fund fraternity of gold bugs.  On May 6, I told you about Stanley Druckenmiller, the dynamic founder of the high-performing Duquesne Capital Hedge fund and how he had the cheek to look an audience of professional investors dead in the eye and tell them to sell their stocks and buy gold.

On May 9 I told you audacious short-trader David Einhorn gave an interview to Bloomberg in which he bluntly stated that central banks’ “Increasingly aggressive and counterproductive monetary policies are bullish for gold.”  Billionaire number three, hedge-fund manager Paul Singer stands shoulder-to-shoulder with Einhorn on the same issue, saying he feels the only thing central banks have accomplished in the last several years is the “debasement of currency.”

Now enter fourth fraternity member – the King of all hedge fund kings – George Soros, Chairman of Soros Fund Management and renowned philanthropist (and Stanley Druckenmiller’s former boss). Soros is infamously known as “the man who broke the bank of England.” In 1992, he sold short (bet on the downside) on the English pound to the tune of ten billion dollars. As it turned out, Soros was right, because England had hesitated to raise interest rates and keep its currency on par with those of other European nations. On that one short play, Soros’s fund earned a billion dollars in one day.

But according to a May 16 government filing, the value of Soros Fund Management’s stocks has dropped thirty-seven percent to three and a half billion dollars. The firm also reported it added two hundred and sixty-four million dollars’ worth of shares in Barrick Gold – the largest gold bullion producer in the world. The value of the firm’s shares has more than doubled this year.

Add to the mix Soros Fund Management’s purchase of option calls, speculating gold will climb higher. At the same time, the firm bought puts, betting that the S&P index will lose value.

George Soros built his twenty-four-billion-dollar fortune through shrewd market moves. When he talks, market makers listen. He’s now publicly expressed concerns that China is saddled with debt, and is in the same precarious position as the United States during the start of the Global Recession in 2007-08. He foresees a “hard landing” for China, at which time deflation will get worse and stocks will lose value.

Yes, George Soros is a multi-billionaire hedge-fund manager, but he now has one client – himself.  He returned his investors’ money to them five years ago.  So, like you and me, Soros is now an individual investor.  We can feel confident, of course, he’s sensitive to currency moves and currency values. Oh – and I guess I should mention it was his former employee, Stanley Druckenmiller, who had first spotted the weakness in the British pound back in 1992. Druckenmiller credits Soros for, at that time, persuading him to follow his gut and “take a gigantic position.”

And a “gigantic position” is precisely what Soros has taken in the current gold market. Even if you can’t make that kind of move, it would behoove you to take a significant position in physical gold relative to your dollar-denominated paper assets. I don’t know about you, but I’ll bet the farm George Soros knows what he’s talking about when it comes to the future value of gold.