Thursday, February 18, 2010

Three Anti-Gold Phonies

George Soros has just joined an elite group, he has dissed gold, yet it has been revealed that his hedge fund is piling into gold. I have discussed Soros and two other anti-gold phonies before, but the audacity of these three to neg gold and then attempt to profit by owning gold is so outrageous that it deserves a write up of its own where all three are called out for their outrageous behavior.

First up, Soros, himself. Mises Institute president, Doug French writes:

That's right, George Soros, the same guy who when interviewed in Davos last month described gold as "the ultimate asset bubble"doubled the holdings of SPDR Gold Trust in his hedge fund in the fourth quarter of last year.
Specifically, Brendan Wagner reports what went down with Soros:

Just a few weeks ago, George Soros told Maria Bartiromo:

"When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment. The ultimate asset bubble is gold."
Part of the Soros increase in his gold position appears to be the result of his exercising some call options he had on the gold ETF. But, the point remains, what is Soros doing owning any gold and exercising call options in gold, if he thinks it is a bubble? Maybe, it could be argued, he thinks he is going to trade out of the position before the bubble breaks, but this flies in the face of the way Soros generally trades. He usually piles on the short side of a bubble market and tries to break it himself. If he thinks gold is a bubble, then he is doing some very odd trading. It's like predicting the Titanic is going to hit an iceberg then going out and buying a roundtrip ticket on the ship.

Next up is the late neo-Keynesian economist. Paul Samuelson. Samuelson's introductory text on economics, Economics: An Introductory Analysis, was the best selling econ text at the college level for decades. Hundreds of thousands of students learned their economics through this text. There were 19 editions of the book.

In the eighth edition (p. 700), he called gold an "anachronism". Some anachronism. The eighth edition came out in 1970. Later in the 1970's, Samuelson gave a good chunk of his royalty income to Princeton Commodities. They proceeded to plow his royalty money into gold and other commodities, which made him another fortune, as inflation soared on the back of an anti-gold international monetary system that ultimately collapsed.

The ultimate award for anti-gold phony has to go to John Maynard Keynes.

As I recently wrote, Keynes called gold a "barbarous relic" in his 1924 book, Monetary Reform (p 172). Yet, when he visited FDR in the 1930's, he, along with Bernard Baruch, urged FDR to prop up the price of gold. Naturally this was after it was confiscated from the citizens of the U.S. and made illegal to own. Writes J.D. Seagraves:

FDR signed Executive Order 6102 into law, prohibiting the “hoarding” of gold. Under this executive order, Americans were prohibited from owning more than $100 worth of gold coins, and all “hoarders” (i.e. people who owned more than $100 worth of gold) were forced, by law, to sell their “excess” gold to the government at the prevailing price of $20.67 per ounce.
This didn't stop Keynes at all. He even wrote an open letter to FDR that appeared in NYT, and other U.S. papers, urging FDR to stabilise the "drunken" price movements in gold. Eventually, FDR followed the advice of Keynes. He propped the gold price up via a gold buying programs that pushed the gold price up in steps by more than 50% to $35 per ounce. It has to be emphasised this was done in the middle of deflationary Great Depression! At the time, there was tremendous natural downward market pressure on the price of gold.

Keynes and Baruch, who are both considered great investors, actually made their greatest investment profits by manipulating FDR and buying gold stocks in the 1930's. The stocks skyrocketed after FDR, on their advice, started propping up the gold price. If you talk to execs at some of the old-line gold mining companies, they will tell you the lore about the 1930's.

While the country was suffering, gold mining stock shareholders were earning huge profits. Money was coming in so fast, they will tell you, that gold mining companies started paying out dividends monthly!

Keynes and Baruch were, in many ways, a two man government manipulating machine a kind of Goldman Sachs of their day. While everyone was suffering, they were rolling in dough, through government propping up of their assets.

Bottom line, when the Soros', Samuelson's and Keynes' of the world start dissing gold, don't pay attention to what they say, look at their portfolios and the huge profits in gold they are usually making while they diss the metal as a bubble, anachronism or barbarous relic.


  1. Wenzel,

    What do you think is the significance of Soros owning paper gold rather than physical gold?

  2. You are interpreting Soros incorrectly. He always jumps on the bandwagon when he sees a bubble forming. Identifying a bubble does not mean that you can't try to take advantage of its gains before it pops.

  3. @Anonymous

    And you think what? That interest rates are headed lower from here? Soros said gold was a bubble because of low interest rates. The next move, my man, is higher rates.

  4. @Banacek your scenario assumes that the reserve banks will be able to do so in time before inflation really kicks in, and I believe that the most common opinion is that they won't. That's why its quite likely that gold is already inflated by this expectation. I don't know where the markets are heading but I do know a few things about human (mis)-behaviour.

  5. Anon,

    Congrats, you've proven with just two posts that you know very little about anything. Keep it up!

  6. @Taylor that may or may not be true but you on the other hand proved to be a rude moron with just one!

  7. It's called "talking your book" - a sort of "head fake" to move the market where you want it. China did the same and then snapped up more gold.

    "The enemy has only images and illusions behind which he hides his true motives. Destroy the image and you will break the enemy."
    –Teacher to Lee (Bruce Lee), "Enter the Dragon," 1973.

  8. @Steve
    but do you seriously believe that Soros could affect the price of gold?
    I doubt he could even if he's a pretty central person.

  9. Yes, many did, even Bob fell for it...(no offense Bob)