By Dian L. Chu, Economic Forecasts & Opinions

Spot gold Tuesday hit a record $1,274.75 an ounce,drifted lower on Wednesday as the dollar surged 3% against the yen when Japan intervened in the currency market for the first time in six years. The yellow metal quickly found support at just below $1,270 an ounce, still near its record high.


Gold was also weighed down by fresh comments from billionaire financier George Soros. In an exclusive interview on Sep. 15 with Thompson Reuters (clip below), Soros says that gold is the ”ultimate bubble,’ and that “this is a period of great uncertainty so nothing is very safe.

“[In a deflationary environment], Gold is the only actual bull market currently. It just made a new high yesterday. In the present circumstances that may continue.  It will be very interesting to see if there is a decline in the next few weeks because practically everything that makes a new high almost immediately afterwards reverses and disappoints.”

“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.”

Soros first made the “ultimate bubble” comment on gold back in January at the World Economic Forum in Davos, Switzerland.  However, his hedge fund–Soros Fund Management LLC–still held 5.24 million shares of the SPDR Gold Trust (GLD), a stake worth about $650 million, and equity holdings in miners of gold and other minerals worth almost $250 million as of June 30.  Soros was the third-largest fund in the Gold Trust ETF at the end of the second quarter.

So, it seems Mr. Soros still sees upside in gold, but was warning of the metal’s volatility instead of a bubble burst. Fundamentally, the current global macro environment–prospect of a synchronized slowing growth coupled with ongoing financial turmoil– and supply/demand are also quite supportive of gold.

From a technical standpoint (see chart), $1,300 range looks to be the next resistance with support at around $1,255.

Disclosure: No Positions
Dian L. Chu, Sep. 16, 2010

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