Personal Finance

Billionaire George Soros is Betting Big on Gold -- Should You?

Gold Price in US Dollars Chart

Several days ago, one of the richest human beings on Earth revealed he'd been bitten hard by the gold bug. George Soros' investment fund, in its quarterly disclosure of U.S. stock positions, revealed that the star investor loaded up on assets tightly linked to the commodity.

Gold Price in US Dollars Chart

Gold Price in US Dollars data by YCharts

...and here it is mashed against both the S&P 500, considered by many to be the bellwether stock index, and U.S. GDP. An inverse correlation is apparent.

Gold Price in US Dollars data by YCharts

Soros' strategy seems clear. By selling over one-third of his stocks, buying put options in the belief that equities will crater, and loading up on arguably the most prominent gold company (Barrick) plus calls on a gold price proxy (SPDR Gold Trust ETF), he believes that the door is closing on the bull market.

And the bears will claw after classic alternatives, like that pretty yellow metal.

All that glitters...

Soros hasn't specified the exact reasons for this recent gold shift. Taking a look at his recent pronouncements, it seems he believes China's economy will shatter, causing deleterious knock-on effects on various markets worldwide. Like equities in this country, for one.

Whatever the reason or reasons, he's not early to the gold party. The price of the commodity has risen notably so far this year, in tandem with Barrick Gold. There are numerous reasons why some investors are looking for perceived safe havens. They're skittish about factors like China, unrest in certain parts of Europe, a (perhaps unsustainably) strong dollar, etc. etc.

So your view on whether it's a smart move to dig for gold alongside George depends on how you view the proximate future of the markets.

If you feel a big equities sell-off is on the horizon, or the Fed's policies will inflate or deflate our currency, or some other negative(s) will result in a gold bug swarm, than you should definitely consider a Soros-like move in the direction of the commodity. If not, gold investments are probably not for you just now.

Soros is brilliant, and he's been spectacularly right on several notable occasions... but he's also been wrong more than once. He isn't infallible, and there's no guarantee he'll profit on this play.

So if you go the gold route, do so because you firmly believe that, for whatever reason(s), the value of those shiny bars will continue to grow in value. Not because a clever rich man is stocking up on them.

There's something big happening this Friday

I don't know about you, but I always pay attention when one of the best growth investors in the world gives me a stock tip. Motley Fool co-founder David Gardner (whose growth-stock newsletter was the best performing in the U.S. as reported by The Wall Street Journal )* and his brother, Motley Fool CEO Tom Gardner, are going to reveal their next stock recommendations this Friday. Together, they've tripled the stock market's return over the last 13 years. And while timing isn't everything, the history of Tom and David's stock picks shows that it pays to get in early on their ideas.

Click here to be among the first people to hear about David and Tom's newest stock recommendations.

*"Look Who's on Top Now" appeared in The Wall Street Journal in Aug. 2013, which references Hulbert's rankings of the best performing stock picking newsletters over a 5-year period from 2008-2013.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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