Gold hits new records; Soros calls bubble

Good Morning,

Thursday’s early action in gold yielded yet another price record; this one, but a dime short of the $1,280.00 spot offer level. The market opened with a $6.80 per ounce gain at $1,275.00 and, as shown on the Kitco Gold Index, the increase was due in equal parts to fresh physical offtake and a once again falling US dollar. The latter lost 0.22 on the trade-weighted index (last quoted at 81.24) but appeared less affected by the plethora of economic statistics that hit the wires this morning than by its dynamics within the yen-euro-dollar triangle.

On the statistical front, we got quite a slew of fresh data; some better than others. Initial unemployment claims fell, but only by 3,000 filings in the latest reporting week. Translation: anemic job creation continues. Wholesale prices edged up 0.4% last month. Translation: gasoline was the main culprit in that equation. Food prices fell, and core producer prices recorded but a 0.1% gain on the month. Translation: inflation continues to be absent from the scene, reflecting a still-weak economic recovery.

Foreign investors bought $61.2 billion of long-term US assets in July. Translation: that’s 38 percent more than they bought in June. Not lost in the translation: China (the allegedly-disgusted-with-US-debt-country) increased its US Treasury holdings in July, following a much-touted but mostly misinterpreted decline in same during May and June.

Oil prices fell to within a hair of the $75 level. Translation: supplies are looking more like a glut and market fundamentals are still a viable price impact factor (unlike in gold, for the time being). And, finally, Greek Finance Minister Papaconstantinou said: “Restructuring is not going to happen.” Translation: “Greece’s debt default is being ruled out.”

Seizures of US homes by domestic lenders rose to 95,364 last month. That was a 25% jump in repos and a new record (for the third time in five months). Translation: there are another potential eight million homes that have not yet hit the market and will likely add to the already-on-record 28% price drop that the US home price barometer has already recorded since 2006. Translation: not everyone was entitled to their own McMansion.

Now, here is something that needs very little in the way of translation:

“I called gold the ultimate bubble which means it may go higher but it's certainly not safe and it's not going to last forever” were the words with which billionaire George Soros –for the second time this year- tried to caution novice investors about the seductive allure of the yellow metal at present. His take on the asset is viewable on Reuters. Certainly, such opinion did not come from a man who is lacking gold in his portfolio. However:

Before anyone spins (and, they will) the man’s cautionary stance as some kind of weird ‘jawboning’ whereby he somehow hopes to drive prices down only to later be able to ‘back up the truck’ and buy more of it, a quick reality check is in order. Item 1: his $658 million worth of GLD shares amounts to…2.6% of his reported $25 billion asset basket, as represented by the Soros Fund Management.

Item 2: a $41 million ‘sliver’ of that golden pile was let go of in Q2 as gold reached for its first record of 2010. At what point the decision I made to lighten up on more of the same, remains to be seen. But, as this writer told TheStreet.com yesterday, Soros will likely never be totally bereft of gold; not given his background, and not given his temperament.

It is just that –at the moment – he too is probably shaking his head in disbelief at the plethora of TEOTWAWKI gold-oriented TV ads with which viewers who have never owned the metal are being lured into the market with. In effect, if there is any need for translation here, Mr. Soros was saying that gold may well be in a bull market, it may be the ultimate bubble, but that it was a heck of a lot safer at half of its current value.

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