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XMFSinchiruna (26.54)

Popping the Soros Gold Bubble



September 23, 2010 – Comments (17) | RELATED TICKERS: GLD , GG , NXG.DL

I'm back from an incredible journey of discovery, and my first order of business is to pop a bubble: the George Soros gold bubble.


If there's one notion relating to gold that I observe most unnecessarily confounding the prospective precious metal investor, it's this useless application of the word bubble in reference to gold. By my reckoning, the only time that word becomes helpful is when an asset class soars over time in the absence of a discernable fundamental basis for the move.

There may come a time when I will become comfortable applying the term to gold, but not before the identifiable fundamental drivers for higher gold prices fail to continue accumulating. Somewhere north of my $2,000 price target for gold -- which incidentally is shared by Soros' former business partner Jim Rogers -- we may eventually witness a dramatic spike that could render new investment in gold an exercise in dangerous and untimely speculation. But until those cows come home, I will reassure gold investors that we are a very long way removed from the inception of a final blow-off phase for gold's multi-year bull market run.

Whether they're locking in profits from recent gains in broader equities, or fleeing wisely from the true bubble that is the market for U.S. Treasury bonds, I sense that many of my fellow Fools are at a loss to identify asset classes in which they feel confident allocating fresh capital. Aside from reminding investors that cash can be an important tool in a high-volatility environment, and with the caveat that allocation strategies must be carefully tailored to suit each individual's unique circumstances, I wish to dispel the notion proposed by Soros that gold does not represent a safe investment at this point in time.

With the $1,000 price level offering what Marc Faber and I both consider a cement floor beneath gold prices to last for the remainder of this secular trend, I would argue downside risk in gold under the prevailing macroeconomic climate is limited. The upside potential, meanwhile, remains subject to the likely exacerbation of impairment to the world's two major reserve currencies over the years to come.


Thanks as always for reading, and for reccing the original article if you appreciate the content. Your thoughts and questions are most welcome here.

17 Comments – Post Your Own

#1) On September 23, 2010 at 5:36 AM, XMFSinchiruna (26.54) wrote:

Also out yesterday:

Smooth Terrane for Thompson Creek

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#2) On September 23, 2010 at 6:41 AM, XMFSinchiruna (26.54) wrote:

Last night's comments from Dan Norcini:

The price level of $1295 – $1300 has been a target for gold once it broke out above $1285. Indeed we are seeing some longs booking profits after a nice run higher so it would not surprise me to see price set back and attempt to rest a bit. If any setback in price holds above $1285 it will be strongly suggestive that a very quick run through $1300 is in order. A deeper setback towards $1260 that holds that level suggests a bit more sideways trade before an attempt to kick off another leg upward. A breach of $1260 would send the metal back towards $1245 where I would look for strong buying to surface.

As our wise friend Monty Guild has written in his recent commentary, the rise of the yellow metal is not going to be without its enemies' notice. The problem for the West and its perennial gold price rigging scheme is that the Central Banks of other emerging economic powers around the globe have plans to increase their official gold holdings as part of their reserves and are now emerging as buyers of the yellow metal. While the West may attempt to fight the rise in price, the East is going to be there to buy it up on the dips that such machinations create. I have long maintained that the battle over gold is really a battle for economic supremacy.


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#3) On September 23, 2010 at 7:11 AM, MoneyWorksforMe (< 20) wrote:

"If there's one notion relating to gold that I observe most unnecessarily confounding the prospective precious metal investor, it's this useless application of the word bubble in reference to gold. By my reckoning, the only time that word becomes helpful is when an asset class soars over time in the absence of a discernable fundamental basis for the move."

Thank you! Precisely the opposite of what is happening with gold. The fundamentals for it to move higher continue to improve! This is why so many have trouble identifying a bubble--it's the driver, not the price itself that determines whether or not one exists! This is the same reason why AAPL continues to make new highs...

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#4) On September 23, 2010 at 10:28 AM, MegaEurope (< 20) wrote:

TMFSinchiruna (98.96) wrote:

By my reckoning, the only time that word becomes helpful is when an asset class soars over time in the absence of a discernable fundamental basis for the move.


But there is almost always some fundamental basis for a bubble.  For example, internet investors weren't complete idiots: growth was so fast that Google, Amazon and Ebay were cheap at 50x earnings.  I define a bubble: when an asset class soars over time in extreme excess over a discernable fundamental basis for the move.

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#5) On September 23, 2010 at 12:18 PM, XMFSinchiruna (26.54) wrote:

What happens with 80 on the USDX is presently the key determinant of gold's momentum for the near-term. Any significant break below 80, and the present breakout is not only confirmed, but can be safely bought in my opinion. Any acute Euro weakness, developments in the yen, or other factors causing a bump above 80 can likewise be seen as obstacles to gold's continued strength near-term. 80 has always been a key level for the USDX, and so it is again.

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#6) On September 23, 2010 at 12:39 PM, GeneralDemon (26.17) wrote:

Hi Chris,

Did you happen to visit North Uist? That's where my grandmother is from. Did you get that "end of the world feeling"? Did you take that old ferry from Uig, Isle of Skye? I had a pint with my dad on that ferry - one of my fondest memories.

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#7) On September 23, 2010 at 12:45 PM, Bays (29.11) wrote:


Great write-up on Terrane/Thompson Creek!

As a shareholder, it was nice to see the diversification. I've done my research on Terrane since the announcement and am looking forward to 2013! This will be a great long-term stock.

I copy and pasted this blog (citing you, of course) on the bullboard of TCM.T on Hope you don't mind.

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#8) On September 23, 2010 at 1:02 PM, blake303 (28.72) wrote:

This is a bit off topic, but involves precious metals and I figured this is as good a place as any on CAPS to ask. I stumbled across this press release the other day and have not been able to find any information on Genco Resources on CAPS. The ticker ( is not in the CAPS system and if it was it would not be ratable. Valuing miners is not my expertise and wanted to see if any Fools have opinions on the company. 

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#9) On September 23, 2010 at 1:04 PM, umps15 (84.71) wrote:

What I'm interested in finding out is what is the likeliness of gold becoming a bubble? I think that at this point, the buying frenzy and the rate of price rise in gold is not enough to match the tech bubble or the gold bubble in the 80's... but each day where gold hits a new high and the economy keeps slumping, the likeliness is getting higher and higher. 

 I like to think that a classic sign of a bubble is when your next door neighbor Bob, who works at home depot, knows nothing about investing ,starts buying into the bubble. When people start giving all sorts of crazy irrational reasons for investing in gold ( i'm starting to see a lot of these on this site and on other financial websites), and doing crazy things like putting 80% of their assets into gold. When there's some kind of massive fraud and shady activity involved (see cash4gold, HSBC's massive gold short and their involvement with GLD)

I'm not saying that gold is a bubble yet... but the signs I see are disturbing to say the least. 

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#10) On September 23, 2010 at 1:05 PM, XMFSinchiruna (26.54) wrote:


We stayed 2 nights in Uig, though sadly I only drank water on the ferry. :) In nearby Portree, however, I embibed the tastiest ale I've ever encountered ... from a brewery located right near the ferry terminal in Uig.

We didn't get to North Uist, but rather focused our trip on the Isle of Lewis, where we found my great-great-grandfather's 1890 tombstone at the ruins of a 12th-century church. An utterly amazing experience ... I can't put it into words. Maybe I'll post a couple of pictures with a subsequent blog post. :)

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#11) On September 23, 2010 at 1:06 PM, Bays (29.11) wrote:

You will find a lot more discussion on Genco here.

I've never looked at it myself. 

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#12) On September 23, 2010 at 1:14 PM, XMFSinchiruna (26.54) wrote:


I understand your concerns. Unfortunately, I am running short on time at the moment, but I did want to plead with you that you reassess your interpretation of the HSBC gold short and the GLD connection. That is not reflective of a bubble ... but rather quite the opposite. Organized price suppression is an anti-bubble ... insurance that lets you know we are nowhere even remotely near bubble territory. When their ability to suppress gold deteriorates, and the paper leverage in the bullion market collapses, from there forward ... and only from there forward, can the gold market have even the capacity of enerting bubble territory.

Same with Cash4Gold ... those who view it as a bubble indicator misunderstand the implications. They are buying peoples' gold, not selling it to them.

Lastly, I would view such anecdotal parameters for determining the existence of a bubble as being highly prone to misinterpretation. It remains only a minute fraction of the populace that owns even a sheckel in gold or silver bullion, and yet those Monex and Goldline commercials often lead to the mistaken conclusion that domestic gold demand is already reaching saturation. Nothing could be further from the truth.

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#13) On September 23, 2010 at 1:20 PM, XMFSinchiruna (26.54) wrote:


I own a miniscule position in Genco purely on the speculation that the interruption of production and resulting lack of profitability were temporary phenomena likely to cease with a merger or acquisition just like the one that resulted this week. This remains a high-risk venture, and in my opinion a purely speculative stock until operations return comfortably to profitability.

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#14) On September 23, 2010 at 1:27 PM, blake303 (28.72) wrote:

Bays & Sinchi - Much appreciated. Very helpful. 

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#15) On September 23, 2010 at 1:30 PM, umps15 (84.71) wrote:

Thank you for your response.. 

I've not yet come to the conclusion that HSBC and GLD is some kind of fraud, despite my suspicions. It just bugs me the similarity between this and Goldman Sach's short on the mortgage CDO's. I think without a question the ETF's have made it easier for people to buy gold and the rise in gold price may not have happened without it. Why is HSBC short on it? Again.. these are suspicions and I have not done a through analysis. 

As for Cash4gold.. they are only a small piece in the big puzzle but at the very least they use questionable business tactics, and at  worst they are a scam. 

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#16) On September 23, 2010 at 2:43 PM, outoffocus (24.06) wrote:

First Majestic Silver has become a 3 bagger since I green thumbed last year. I'm still surprised you havent covered this company.

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#17) On September 23, 2010 at 3:56 PM, XMFSinchiruna (26.54) wrote:


There are just too many 3-baggers to keep track of. :)

Actually, it has more to do with me not being able to cover stocks that don't trade on U.S. exchanges. It's a terrific company, and I'm glad it's done well for you.

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