George Soros switches from physical gold to gold stocks and that is very bullish for gold prices

Posted on 20 May 2013 with 9 comments from readers

Ever the investor who loves to confuse markets – remember how his description of gold as the ‘ultimate bubble’ confused some folk as he bought the metal himself – George Soros has done it again with his gold ETF sales.

Today the global financial press is awash with reports that Mr. Soros has sold gold again. True. But he has reinvested that money in a far more risky investment in gold miners whose performance is leveraged against the gold price. They go up faster than the gold price and they fall further when it comes down too.

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Very bullish

The Soros Investment Fund’s 13F filing does indeed show the sale of 12 per cent of his total investment in GLD. But it also reveals that he then used $40 million of that cash to buy shares of the Market Vectors Gold Miner Major ETF (GDX).

Then he also bought $25 million worth of call options on the Market Vectors Gold Miner Junior ETF (GDXJ). As all gold mining stocks are leveraged plays on the price of gold and the juniors are the most leveraged bet of all, this is very bullish. The second investment in the juniors is about as bullish on the gold price as anybody could get.

How typical of Mr. Soros to put the cat among the pigeons again. He likes of course to throw up a smokescreen in one direction while moving off in another. The true mark of the master trader. ArabianMoney has also jumped in the same direction (click here). Readers of our monthly investment newsletter got this tip last month (subscribe here). It’s a bit late to read about it today.

This looks a clever move, so long as the stock market’s current euphoria holds up, and gold bounces off $1,321 as a testing of the bottom of the last sell-off. Still Mr. Soros knows his market timing and following in his wake usually pays off handsomely. But better still to be ahead of him…