Financial Communique » George Soros

Would the gold baloon burst?

Viliyana Filipova — Tue, 23 Nov 2010 11:16:26 +0000

The gold has appreciated by 24% this year and is about to celebrate its tenth consecutive year of growth because of increased interest of investors to it as an alternative to paper money and means of protection against inflation. The strong jump in price in recent years does not seem to interfere with speculators like George Soros and John Paulson, who actively increased their investment in gold. Gold occupies the largest share in investment funds managed by them Soros Fund Management and Paulson & Co. at the end of the third quarter. The exchange traded funds that bet on gold, have 2088 metric tons of gold which is approximately equal to its extraction from the mines in the U.S. for nine years. According to investment firm BlackRock is more official gold reserves of any country except the U.S., Germany, Italy and France. Meanwhile, Goldman Sachs forecast that the precious metals will be the most profitable assets next year. The rapid increase in gold prices over the past three years undertaken since governments and central banks worldwide, led by the U.S. Federal Reserve, money supply grew strongly in their efforts to cope with severe financial crisis. Significantly, gold has appreciated by 87% since September 2007 when the Fed started lowering interest rates and financial markets have begun to feel the effects of mortgage crisis. The broad U.S. stock index S & P 500 in the standing with 21% below their levels of September 2007. According to analysts of Euro Pacific Capital, which successfully predicted the gold price records in the last two years, its rapid appreciation will end when real interest rates become positive. They point out that instead the Fed print more money to stop the rise in real interest rates and stimulate the economy.
The base rate in the U.S., Britain, Canada, Switzerland and Japan is in the range from 0% to 1% from December 2008 onwards. For the appreciation of gold can help the decision of the Federal Reserve to inject another 600 billion dollars in U.S. financial system by June next year by buying government securities. The expectations for a new injection of liquidity in the U.S. dollar index fell 8.5 percent in the third quarter, its strongest decline for the past eight years. Through its first cash injection the U.S. central bank merged over 1.7 trillion. dollars through purchases of mortgage bonds and government securities. Gold has only income for changes in market price, unlike most other assets such as stock dividends and coupons on bonds. Its price, however, jumped to a record 1,424.60 dollars per ounce on November 9, shortly after the announcement of the new financial injection in the U.S. Other precious metals such as silver, for example, provide even better than gold this year. Silver has appreciated by 61%, and the price of palladium has risen by 72%. The strong performance of silver is due partly to the fact that it is regarded as a cheaper alternative to gold. Moreover, silver is used more actively in industrial production – about 50% of the demand comes from this sector, while gold it is a source of 9% of demand. This shows that the increasing price of silver could also reflect investor optimism about economic recovery.
George Soros, who won $ 1 billion through speculation in the British pound in 1992, called gold “the perfect bubble” during the World Economic Forum in Davos in January. “To buy when a bubble starts to inflate, it is prudent,” he said. According to him, deflationary pressures and the fear of inflation now are ideal conditions for the appreciation of gold. The gold price rose more than eight times in the 1976-1980 period, reaching a record $ 850 an ounce before plunging 67% to just 284.25 dollars per ounce over the next five years. This peak, adjusted for inflation, amounts to 2266 dollars an ounce today on the basis of the calculator on the website of the branch of the Federal Reserve in Minneapolis. According to the analysis of Euro Pacific gold price will jump to 1800 dollars an ounce in 2011. The price of the metal, however, may stop its rise, if the debt crisis subsides in Europe and China control the acceleration of inflation without harming growth.

Greece will remain in the euro area, according to Soros

Viliyana Filipova — Wed, 10 Feb 2010 09:41:09 +0000

The billionaire investor George Soros said he believes in the ability of Greece to remain in the euro area. He also said that the eyes of market participants are currently targeting the debt problems of several countries, including Greece stands in the foreground. “I believe that Greece will do whatever is necessary to meet the requirements to remain in the euro area,” said Soros told reporters in Jakarta. Among the main reasons the country is fighting for his membership in the euro area is that when the ECB adopts its bonds as collateral for a loan of commercial banks. In the event that the country lost the credit rating, however, its securities will no longer meet the necessary conditions and will not be accepted as collateral. “Support in Greece aims to achieve, I hope the EU, the ECB and the euro area to find a way to finance the country which is not too expensive to support,” said Soros, quoted by Bloomberg.
The American economist Nouri Rubies in turn said that the decision of European leaders to help Greece is a step in the right direction. ” According to him, however, the most appropriate in the long term the country would take a loan from European countries and the International Monetary Fund. George Soros has gained worldwide fame when in 1992 Britain refused membership of the eurozone. Then he made several subsequent pledge of 1 billion dollars in the direction that the country will be able to keep its currency within the currency regime before entry into

Soros has called for radical reform of the banking sector

Viliyana Filipova — Mon, 01 Feb 2010 01:41:25 +0000

The legendary investor George Soros called from Davos to radically reduce the size of banks that are too big to be allowed to fail transmitted BBC. At the World Economic Forum, he spoke in support of U.S. President Barack Obama in his attempts to separate commercial and investment banking. According to him, however, even after such action, most investment banks will still remain too large to fail. To control these banks, all major economies need to rally around strict rules to limit the risk – how much money banks can borrow to invest, “said billionaire. He acknowledges that it will be difficult to determine the exact ceiling on leverage, but that governments have enough time to develop a global regulatory framework. George Soros called the current economic crisis “super bubble” which was created by the system itself, and was the culmination of a series of smaller balloons in the last 25 years, and unsuccessful attempts to remove them. They add balloons were caused by facilitated credit and high financial leverage. As regulators and bankers were wrongly believed that markets are efficient, Soros continued, and were blinded by ideology that they should always be less regulated. And when the bubble burst, governments and regulators to further worsen the situation by reducing interest rates make money cheaper and thus to the mortgage crisis in the United States, which rocked the entire financial system.
Soros also warned politicians to prevent hasty and ill-considered regulation. According to him it is wrong to impose high taxes on the profits of banks, because the crisis is still not fully overcome.