There are some hedge fund operators and investors that you should pay attention to if you want to make money or at least keep it. One of them is George Soros; he successfully predicted that the British pound would collapse in 1992, and he predicted that the mortgage bubble would collapse in 2008. Just because there are many things he does that are questionable, when it comes to investments and making money, the man does know his business.
Now Soros has his eyes set on gold or its collapse. News reports indicate that Soros has sold most of his gold, and he’s not the only one. Bloomberg reported that investors sold 106.2 million tons of gold held in exchange traded funds (ETFs) in February. Investors are bailing out of the gold market at warp speed.
Gold prices have fallen from a high of nearly $1,800 in October to a low of $1368 at the close of business on May 17th. The price of gold is collapsing, so what’s happening here? The answer is simple—gold, like anything else that you can buy and sell, is not immune to the market. It can lose or gain value just like anything else.
What Market Forces Are Driving Gold Down?
So what market forces are driving gold down, and how might they affect you? Well, the first is the world’s largest buyer of gold: India. Working and middle class Indians don’t trust the banks or their government. When they invest, they often buy precious metals such as gold. Unlike China, India is basically a free country, and Indians have the freedom to buy gold. They are the world’s largest purchaser of gold jewellery, which is easy to hide from the taxman.
Indian demand for gold has fallen because of a dismal economy and increased taxes in recent years. It might go up in coming months because the Indian parliament isn’t going to raise import taxes this year as had been expected. That means gold prices could increase in India over the next few months.
The problem is that any increase in Indian gold purchases could be offset by events elsewhere. That includes North America and Europe, where investors are dumping gold. It also includes China, the world’s second biggest gold market, which might be headed into recession. Another problem is Europe, where demand from southern Europe has fallen because of the economic crisis.
Expect gold prices to fall and fall again for the foreseeable future. Any serious increase in gold prices won’t come until next year or later.
So What Is an Average Person or Family to Do?
The best thing for an average person to do is treat gold the way George Soros does—as just another investment. If gold rises to a high price, sell it and pocket the cash. If gold falls to a low price, buy it because it will go up again sooner or later. Remember, you can always buy back the gold you sell today at a lower price later on and pocket the difference.
This doesn’t mean you shouldn’t have some gold in your portfolio; instead it means gold should be only one of many investments you make. The average family would be far better off if they paid off their mortgage or built a system to generate their own electricity rather than having a large stockpile of physical gold.
Investing in a physical entity you can control directly, such as a rental property or a small business, is another great step to take. That way you can generate income for your family even if the gold market collapses completely. Another great investment to make is to acquire a marketable skill such as software writing or hair styling. Even in the worst situations, those with skills can make a comfortable living.
Follow the Example of Survivors
The best way to survive is to emulate other survivors, even if you don’t like their politics. When you see somebody with a reputation as a survivor behaving in a certain manner, ask yourself what is going on here.
That is exactly what is happing with George Soros and gold. His instincts tell him to sell so he sells. Remember, traders like Soros actually know the market really works, unlike economists (most of whom cannot balance their own check books).
Central Banks and Gold
Some of you have probably heard that central banks like the Federal Reserve and the Bank of England are buying gold. That is true, but those institutions are buying gold because it is cheap right now. Some of those banks are actually buying back the gold they just sold at a profit for a lower price.
Something to remember here is that central banks can do a lot of stuff with gold that you and I cannot. They can borrow money against it or sell it off very quickly if the metal loses or gains value fast. Therefore the central banks are not taking much of a risk.
It is better to take a look at the whole market and those investors, such as George Soros and Warren Buffett, who have a reputation for beating the market than one sector. Another thing to remember here is that central bankers are not investing their own money. They are investing the taxpayers’ money so they won’t lose any of their personal funds if gold keeps tanking.
Cash Is King
At the end of the day, cash is king, and gold is not cash in our society. Gold has no magic powers and no inherent wealth in and of itself. Gold only has value because people give it value.
An average family will be far better off with a large stockpile of cash in a bank account or CD than a supply of gold. If the economy really starts to collapse, the family can quickly convert that money into a large stockpile of useful items, such as food, tools, fuels, seeds, etc. If the economy collapses, the gold won’t be worth anything because there will be no place to sell it. If the economy does not collapse, the gold could lose all its value as it did in the 1990s and leave the family entirely bankrupt.
Commodities like gold are best used to generate large amounts of cash through trading. The belief that gold is immune to the market is a dangerous delusion that you should avoid. Recent events prove that completely.