According to the figures in the form 13F reports from the SEC, genius billionaire investor, convicted currency manipulator, and Obama financial backer, George Soros, bought millions of dollars worth of gold recently. While the news has investors buzzing and speculating about Soros’ view of America’s faltering economy, Forbes Magazine is warning investors that imitating George would be foolish.
Soros and another billionaire investor, John Paulson, have managed to accumulate the largest combined private bullion holdings in history. Paulson, who became a billionaire by investing against the sub-prime mortgage market, now owns 21.8 million shares in the SPDR Gold Trust. His 66 tons of gold exceeds the official reserves of Brazil, Bulgaria, or Bolivia.
Meanwhile, Soros purchased another 884,000 shares (or $130 million of Gold) in the SPDR Gold Trust, raising his total holding to $219 million. US Securities and Exchange Commission filings indicate Soros Fund Management LLC increased its holdings by 49 percent in the third quarter of 2012.
George Soros has been predicting gloom and doom all year. He seems to almost thrill to the anticipation of financial chaos and the impending violence that may result. In an interview with Newsweek earlier this year, Soros expressed his fears about the future for the American Economy.
“I am not here to cheer you up. The situation is about as serious and difficult as I’ve experienced in my career . We are facing an extremely difficult time, comparable in many ways to the 1930s, the Great Depression. We are facing now a general retrenchment in the developed world, which threatens to put us in a decade of more stagnation, or worse. The best-case scenario is a deflationary environment. The worst-case scenario is a collapse of the financial system.
“As anger rises, riots on the streets of American cities are inevitable. Yes, yes, yes. It will be an excuse for cracking down and using strong-arm tactics to maintain law and order, which, carried to an extreme, could bring about a repressive political system, a society where individual liberty is much more constrained, which would be a break with the tradition of the United States.”
While the average investor might be tempted to read the two billionaires purchases as a warning that the US economy is about to collapse and starting buying all the gold they can afford, Forbes contributor, Nigam Arora, warns investors to exercise caution and not join a mad dash to imitate Soros or Paulson.
Arora makes several interesting points in his argument against following Soros’ investment strategy. Arora is not advising investors against gold, but he is cautioning them not to base their decisions on the thinking of a billionaire with a penchant for shady dealing and extreme secrecy. According to the Forbes author, “There are plenty of reasons to buy gold; buying gold just because Paulson and Soros bought gold is a fool’s game.”
Mr. Arora reminds readers that the information about Soros and Paulson’s gold purchases is based on SEC filings from the last day of the previous quarter and the filings are delayed for 45 days before they are posted. Many changes occurred in the world’s financial markets since then, and last quarter’s filings may not reflect the current holdings of either billionaire. He also claims that neither investor has a good track record when it comes to precious metal investments.
“I am not privy to the current thinking of Paulson or Soros. Most money managers tend to have a portfolio strategy and if they are buying gold a macro strategy. An investor who simply buys one position of a fund without understanding the rest of the portfolio of the fund is not doing himself or herself a favor.”
Although Arora advises caution, many feel gold is a good hedge against the possibility of a world wide financial collapse. Michael Mullaney, who helps manage $9.5 billion of assets as chief investment officer at Fiduciary Trust in Boston, is a believer in gold.
“We see gold as a hedge against the follies of politicians. It’s a good time to garner some protection in portfolios by having some real asset like gold.”
Despite the inclinations of two of the world’s billionaires, here is some sound advice from a long forgotten, old time Wall Street Trader:
“It’s said with a whisper and not with a shout, when the widows and orphans get in, it’s time to get out.”