George Soros has gold fever, and it’s driven him to buy a stake in gold mining. The billionaire investor has invested in Barrick Gold with 19.4 million shares costing him $263.7 million.
Once calling gold “the ultimate bubble,” Soros was heavily involved in gold a few years ago but took a break for three years to pursue other interests. In the previous five years, the gold business plunged 76 percent, but Bloomberg has predicted that the market will double this year. George must have seen the signs and decided it was time to resume his investments.
In addition to his Barrick Gold investments, Soros also invested in SPDR Gold Trust, the world’s largest exchanged-traded gold fund. He purchased 1.05 million shares valued at approximately $123.5 million.
Stocks in gold are rising, according to Bloomberg. Their research shows that bullion is up 20 percent this year, setting it at the highest level in 15 months. For awhile, gold investments were considered risky at best, but the market is beginning to change, and George Soros is determined to lead the transition.
But not all investors have left their trust in the gold market. Paulson & Co, a hedge fund based out of New York and led by John Paulson, is one of the most influential gold investors today, but they’ve reduced their shares significantly. They’ve removed 17 percent of their holdings, now holding only 4.8 million shares. A withdrawal like this is a sure sign that the investment has no longer been profitable for the company.
Soros believes that things are about to change, however. He is focused on China’s economy right now, which has slowed considerably in the last few years. George seems to worry that the financial crisis we experienced in 2008 might happen again as a result of China’s economy. He believes that investing in gold now will help to counteract the effects of a struggling economy.
Bloomberg shows that there are a few different reasons for Soros’s, and other investor’s, interest in gold at the present moment. To begin with, gold price directly reflects the leverage of stocks. Because the gold price is rising, it generally indicates better returns for the stakeholders.
Production costs can also impact the gold mining market. More efficient products and drastic cuts in spending within mining businesses enable companies to operate with much higher returns. Because they’re able to finance the business for less, profit margins speak volumes to investors.
Exchange rates are another important factor to consider. The dollar is among the strongest currencies in the market. Foreign currencies the United States generally deals with in trade have strengthened over time, but they’re still considered weak. Miners outside the United States who earn revenue in dollars but pay living costs in the local currency have seen the direct benefits of this. These high exchange rates in favor of the dollar indicate a strong market.
In addition to better profit margins, the quality of the mining is improved with reduced efficiencies and more profitable exchange rates. Weaker operations sell their gold at lower prices while higher quality gold sells for mint prices. This kind of economical structure is prime for drawing buyers all over the world.
Before the financial crisis, gold was performing particularly well, and many mining operations and investors borrowed hefty amounts of money to stay in the game. Then, the prices dropped dramatically, and mining operations were unable to pay back much of the debt they borrowed. The high amounts of debt put many miners out of business, but as prices rise, those in the gold business are getting out of debt and seeing profits sail.
Investments in Barrick Gold are wise in this present market due to increased profits from the company, which has slashed operating costs and debt. George Soros seems to have made a good investment for the present, and time will show whether his holdings are profitable or hazardous.
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