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Wednesday, 12 August 12:47 (GMT -05:00)

Stock and commodities markets

“Gold bubble” or secret of successful investment from George Soros



As Market Leader previously reported, a 24% increase in the value of gold didn’t stop George Soros, John Paulson and Paul Touradji from buying it. According to the data provided by U.S. Securities and Exchange Commission (SEC), the biggest volumes of gold were bought by Soros Fund Management LLC, Paulson & Co. and Touradji Capital Management LP. The total volume of the precious metal owned by the 3 companies is 2088 tons, which is roughly equal to the volume produced by the USA in 10 years.
And while the Fed Reserve and other central banks around the world have already poured into the global economy over $2 trillion, in their turn investors are getting more active in buying up the stable assets. At this point 50% of the total gold reserve is in the hands of private investors. Yet the volume of gold that is in free circulation significantly exceeds the one of reserves accumulated by numerous countries, except the USA, Germany, Italy and France.
Michael Pento, chief economist for Euro Pacific Capital, says that those who get rid of gold make a big mistake. The uptrend will stop only when the real interest rates are of positive value, which in its turn will take place when the Fed Reserve stops emitting money in order to restrain the growth of the interest rates. In connection with that Goldman Sachs Group economists expect precious metals operations to bring the biggest profits next year.
Since September 2007 the Federal Reserve has been reducing the interest rates while the credit markets have become more volatile (oscillating). Gold has gained 87% of its previous value. S&P500 has lost 21% (even taking into account the previous 23% upswing), which is the lowest value since 2003.
The Federal Reserve has been keeping the interest rates close to zero since December 2008. Moreover, it is planning to pour extra $600B into the US economy until June 2011 through placing government bonds as a part of the Quantitative Easing 2 program (QE2).
In the meantime, in the 3rd quarter the USD index (USD versus other 6 major currencies) declined by 8.5%, which was the biggest fall over the last 8 years.
Experts believe that QE2 will only accelerate the uptrend of gold. The real sort-term interest rate adjusted for inflation still has a negative value, which will make commodity markets see up-trends.
It is confirmed by the gold price. On Nov 9th it reached its record-breaking level over the last 9 years, making up $1424.60 per troy ounce. Other precious metals also showed considerable growth. For example, on Nov 19th silver futures indicated a 61% increase in the value while the treasury notes gained 7.3%.
As far back as in January George Soros explained that the entire issue about gold was a big “soap bubble”. Yet, investing in soap bubbles is very profitable when they only start growing in size.
According to Howard Friend, chief economist for MigBank, the best Forex broker, during the last week gold didn’t fall below the key support at 1.3335. On the contrary, there was an upward rebound from it with perspectives of another uptrend.



It further development may result in reaching 1367. The closest resistance level is at 1395. If gold succeeds in getting over it then the next resistance level will be at 1408.
If the market chooses the other scenario there will be a fall below 1352 indicating a downward tendency. In any case, a more precise forecast may be given only after the market goes below the 1335 and 1328 support levels. In that case the next support will be at 1295.



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Text: Alexey Borzak
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