From Gold Core
Soros: “Financial system remains extremely vulnerable … We are on the verge of an economic collapse”
Gold is mixed today after last week’s 2.4% fall. The short term trend remains negative but medium and long fundamentals remain supportive as do the very challenging and risky macro, sovereign debt and currency environment. Physical buying remains strong at the $1500 level with premiums for gold bullion bars higher in Singapore and Hong Kong.
The risk of contagion in the Eurozone and indeed a global financial contagion remains real. Peripheral European bond markets are under pressure again today with 10 year bond yields in Ireland rising to over 12.1% and to over 11.65% in Portugal.
Cross Currency Rates
European leaders are preparing for a default by Greece. The German finance minister, Wolfgang Schaeuble, said yesterday that Europe is preparing "for the worst".
George Soros, Chairman of Soros Fund Management and famous for breaking the Bank of England in 1992, has warned that "we are on the verge of an economic collapse which starts, let's say, in Greece but it could easily spread."
Gold in Euros – 1 Year (Daily)
The 80-year-old investor said that the “financial system remains extremely vulnerable."
Soros added that "there are fundamental flaws that need to be corrected." The core flaw, says Soros, is that the euro is not backed by a political union or joint treasury, so when something goes wrong with a participating country, there is "no provision for correction."
Soros said that it is "probably inevitable" that highly indebted countries will be given a way to quit the euro.
Gold has been the strongest currency in the world in recent years and all major fiat currencies, including the Swiss franc, have fallen against it. Should Greece revert to drachmas, Ireland to punts, Spain to pesetas, Italy to lira and Portugal to escudos, these countries would suffer massive inflation and the price of gold would surge in terms of these local currencies.
PORTUGUESE GOVERNMENT BONDS 10YR NOTE – 1 Year (Daily)
The assertion that gold is a bubble may soon be seen as silly as gold increasingly reasserts itself as a safe haven asset and currency.
Gold’s primary advantage is that it protects against currency devaluation – this will be realized again in the coming weeks and months.
The very strong demand for gold seen in Greece in recent days will likely soon be experienced in other peripheral Eurozone countries It will likely be replicated internationally as concerns mount about currency debasement and currencies in general including the euro, the British pound and the U.S. dollar.
Soros Gold ETF Sale - Well Publicized but Poorly Analyzed
Soros’ recent sale of his gold ETF holdings made headline news internationally with much commentary claiming that Soros sale of his gold ETF holdings means that gold has “peaked” and the “bubble” may soon burst.
However, what was less reported was the fact that Soros maintained very significant positions in gold mining companies.
It is highly unlikely that Soros Fund Management would maintain significant allocation to gold mining companies if there was a belief that gold was a bubble that was soon to burst.
Indeed, if his hedge fund truly believed that gold was a bubble and significantly overvalued, it would seem sensible of them to have shorted the gold ETF and not have added to gold mining positions.
More plausible is that Soros, given his political activism, may have decided that he did not want continuing publicity regarding his large ETF gold holding. ETF gold holdings like all securities must be declared in SEC filings.