According to reports, Soros has been concerned with the way the Chinese economy has been behaving lately. In his view, China is headed for a 2008-09 US style recession. If that is true, the world economy will be in a lot of pain, and investors that opted out of the equity markets to buy some good old bullion, will be able to save their funds. But the Chinese economy has been worrying investors for over a year now, which is why the timing of the Soros move raises questions.
Since the billionaire trader financed his gold move with the proceeds from part of his long term stock holdings, it could be possible that he was waiting for the perfect timing. While he waited, the price of gold kept on rising. Since the year started, gold has gone from a price of around $1,050 USD per ounce, to a staggering $1,270 USD per ounce. Very few equity investments have given such a rate of return to their investors, and on the commodity side, the only raw material that has outpaced gold gains, is oil – which is much more volatile and susceptible to sudden economic shifts.
Despite the issue of Soros’ timing, this move has the potential of creating some momentum for gold bulls. This is more due to the fact that there are genuine fears about the stability of the world economy, and enough stagnation in equity markets to warrant a change in investment flows. In the meantime, investors who will chose to follow Soros into gold, might also be buying closer to market peaks than many would expect. Uncertainty may also work against the price of gold if a sudden surge from India or a softer than expected Chinese landing, moderate gold gains.
