Soros Purchases Gold Futures. Should We Copy His Gold Trades?

Well-known traders and investors as well as their trading and investment activities certainly deserve attention. Many traders around the globe try to copy the gurus’ trading styles in effort to be successful speculators.  These days, you can often hear a beginning trader boasting: “I trade like Soros!” However, professional traders only smile when hearing anything like that.

Not so long ago The Washington Post reported that George Soros had returned to the market of gold. An army of his followers instantly started buying gold futures.

What does Soros’ return really mean? Is gold really a bargain at the moment? Let the experts of help us to answer these questions?

Gold:  Safe Haven Asset?

According to Eugene Olkhovsky, ’s leading expert, Soros did surprise numerous experts around the globe by investing substantial funds in gold assets. You can hardly find a precedent when a tycoon like Soros sells all his holdings of gold assets (spring 2010) at $1100-1200/oz and then suddenly decides to reinvest in gold assets 2 years later at $1600/oz.

Obviously, Soros’ purchase of gold  assets in 2008 at $700/oz (after the price retraced by 30%) was an screaming bargain.  2 year later he sold it $ 1100-1200/oz, thereby making a fortune. However, today’s purchase of gold assets at $1600/oz (after the price retraced 19%) puzzles analysts, Eugene Olkhovsky says.

Which stocks did Soros sell to invest in gold?

At this point, George Soros sold 1,2 billion shares of numerous financial institutions like Citigroup, JP Morgan, Goldman Sachs to attract $50 million. He added this sum to a $130 million pool in order to invest it in SPDR Gold Trust. Therefore, he has tripled his gold assets since early 2012.

Meanwhile, the stock of SPDR Gold Trust is appreciating in value:

Most of us can say that if Soros invests hundreds of millions of dollars in gold, this probably means something. However, in order to understand the true reasons for his latest gold investments we should think like Soros, which is something only few people can do.

Obviously, many investors have already copied Soros’ recent investments. However, we should always keep in mind the speculative nature of Soros’ actions.

Future Gold Trend: Another Crisis Or US Presidential Elections?

If another global crisis breaks out, some analysts expect gold (together with oil, stocks, bonds and currencies) to collapse like in 2008 (or even harder), especially as more politicians around the globe start talking about crisis phenomena.

All the gloomy forecasts suggest that the 20012-2013crisis will be more prolonged and deeper then the preceding one. In this case, they say, we may expect gold collapsing by more than 30%.

According to Ross Norman, CEO of Sharps Pixley Ltd, gold prices will rally on numerous economic problems and lower gold production rather than the weakening of the US Dollar (they have a negative correlation).  Therefore, gold will influence the currency market, not vice versa.

Another major factor to consider is the US presidential elections scheduled for November 2012. If Mitt Romney wins the elections, he promises to revive the Gold Standard, which suggests that the Federal Reserve will start purchasing gold heavily.  It is not accidental that Soros’ ill-wishers hint at some inside info, which is believed to force Soros, Paulson and other major investors into investing in gold again. In particular, Paulson & Co owns 98 million shares of gold mining companies while Pacific Investment Management Company (PIMCO) ordered its Commodity Real Return Strategy Fund ($21bn in assets) to invest 11.5% of the capital in gold.

It seems like it’s calm before the storm.  Everybody is waiting for one of the two scenarios to manifest itself. Everyone… except Soros, Paulson and the like.

Where Will Gold Market Go? What Should Common Investors Do?

According to , history shows that all corrections in the market of gold sooner or later lead to new price highs. Therefore, we may well see gold making another all-time price high in late 2012. Soros wasn’t the first one who bet on gold in effort to hedge his capital against a financial collapse. The Bank of Russia, the People’s Bank of China and other central banks around the globe have recently been net buyers of gold bullions in order to expand their gold reserves.

According to Andrei Golilov, chief strategist at Roboforex,  Soros’ interest in gold is explainable. Technically, gold has a substantial bullish potential. Big-scale charts show that the price of gold is still mowing within the bullish sloping channel. Moreover, the price has recently met a strong level of support at $1530/oz. The major target is $2550/oz.

According to Larson&Holz, big-scale sales of financial stocks by a financial tycoon like Soros may suggest another major crisis in late 2012 - early 2013, especially as there are enough preconditions for it, including the eurozone crisis, China’s economic slowdown, contradictory economic stats coming from the USA etc. If there is no QE3 in the near future, markets may collapse. During times of uncertainty, investors go risk-averse while gold has always been considered as a safe haven asset.

If there is a double-dip recession around the globe, more investors may lose confidence in the US Dollar, especially as the USA’s public debt is around 100% of GDP. This factor may reduce the demand for US bonds. Therefore, investors will have to turn to alternative assets. Gold prices may surge.

According to Forex4you, we should never copy one’s trading style or approach blindly. Critical thinking is a key to successful trading and investing. If you want to copy a tycoon’s trades, at least try to figure out what are the genuine reasons behind them.