Soros Buying More Gold; Should You?

Soros Buying More GoldWhile the recent rally in gold prices seems to have hit a speed bump with the latest pullback, it appears that a lot of large institutional investors are still favoring gold bullion. According to the U.S. Securities and Exchange Commission, Soros Fund Management LLC, the investment company started by legendary hedge-fund manager George Soros, increased its holdings in the gold exchange-traded fund (ETF) SPDR Gold Trust (NYSE/GLD) by 49% in the third quarter. (Source: “Soros Buying Gold as Record Prices Seen on Stimulus,” Bloomberg, November 20, 2012.)

As well as his investments, according to the report, Bloomberg conducted a survey of 16 analysts whose estimated average price for gold bullion next year is $1,925 an ounce. Many of the moves by large institutions into gold bullion are for protection against the ineptitude of world politicians. We constantly see that, country after country, politicians are only interested in short-term gains, which usually means spending freely to garner favorable status amongst voters.

Many large institutions see gold bullion as immune to the wishes of politicians. As much as a politician might want to massively increase spending, one can’t simply create gold bullion out of thin air. Gold prices have had a strong run over the past 12 years, and many are worried about the limit to the move for gold prices. While I do agree that nothing can go up forever, until sound monetary policy is enacted in many nations around the world, I think you’ll see more large institutions move into gold bullion as a hedge.

One of the favorable outcomes of this presidential election for investors in gold bullion was that Obama won. He’s a strong supporter of the current Federal Reserve Chairman, Ben Bernanke, and will most likely appoint a very dovish, or pro-stimulus, chairman. If Governor Romney had been elected, on the margins, it would have been slightly bearish for gold bullion and gold prices, as he was interested in more of a balanced approach to both fiscal and monetary policy initiatives. Of course, once elected, many politicians can and do change their minds, so we’ll never really know.

Gold Spot Price CME Stock Market Chart

Chart courtesy of www.StockCharts.com

This is a one-year daily chart of gold prices. The recent pullback in gold prices ended just above the 200-day moving average (MA). This then resulted in a strong move upward for gold bullion in early November. It appears that gold prices are forming a base to once again move upward through the $1,750 level, which is crucial, before a retest of $1,800. Also, note that the recent pullback ended at the upward-sloping support line for gold prices. Once gold bullion exceeds $1,750, I think you’ll see an additional flow of funds enter this market.

Gold Spot Price CME Chart -Stock

Chart courtesy of www.StockCharts.com

This is a three-year weekly chart for gold bullion. Notice the importance of a break above $1,800. The key point to note in this chart for gold prices is that the current low is above the lows of the summer. The market now needs to have gold bullion exceed $1,800 shortly; otherwise, there is the possibility of a failure, which would mean that gold prices would fall backward to the next area of support, which is approximately $1,550.

While investors bullish on gold bullion will be pleased to hear that major investors, such as George Soros, believe gold prices will move higher, this is no guarantee of success. Many hedge-fund managers do lose a lot of money, so one should never invest based solely on such information. Every investor must personally conduct their own thorough due diligence for every investment.