(Bloomberg News) Gold's 23% surge this year to a record is proving no deterrent to George Soros, John Paulson and Paul Touradji, whose investments signal more gains for the longest winning streak in at least nine decades.
Securities and Exchange Commission filings this month by Soros Fund Management LLC, Paulson & Co. and Touradji Capital Management LP listed investments in gold as their biggest holdings. Exchange-traded products own 2,088 metric tons, equal to nine years of U.S. mine supply, data compiled by Bloomberg show. Precious metals will produce the best commodity returns in the next year, Goldman Sachs Group Inc. said in a Nov. 9 report.
The purchases show how investors are snapping up hard assets as governments and central banks led by the Federal Reserve pump more than $2 trillion into the world financial system. Gold in exchange-traded products, as much as half of which may be held by individual investors according to BlackRock Inc., is equal to more bullion than the official reserves of every country except the U.S., Germany, Italy and France.
"People who are selling gold here are making a big mistake," said Michael Pento, a senior economist at Euro Pacific Capital Inc. in New York who correctly predicted gold's highs the past two years. "The gold bull market will end when real interest rates become positive and we're very far away from that. The Fed believes it's going to have to print more money to keep real interest rates from rising and rescue the economy."
Gold gained 87% since September 2007 when the Fed began cutting benchmark interest rates and global credit markets started to falter. The Standard & Poor's 500 Index of shares is down 21% since then, even after last year jumping 23%, the most since 2003. The Fed has kept its benchmark interest rate near zero since December 2008 and plans to pump another $600 billion into the economy through June by purchasing government bonds, a program known as quantitative easing.
The central bank bought $1.7 trillion of securities in a first phase that ended in March. The U.S. Dollar Index, tracking the currency against six counterparts, slumped 8.5% in the third quarter, the most in eight years.
"QE2 just further strengthens the already strong market for hard assets like gold," said Michael Cuggino, who helps manage $9 billion at Permanent Portfolio Funds in San Francisco, and has about 20% of his assets in gold. "Real short-term interest rates after inflation are still negative and until that changes, commodities are going to continue to make higher highs."
Gold, which doesn't pay a dividend, reached a record $1,424.60 an ounce in London on Nov. 9 and was at $1,351.65 at 3:47 p.m. Prices are heading for a 10th consecutive annual gain, the best performance since at least 1920. The S&P 500 Index returned about 9.5% with dividends reinvested, according to data compiled by Bloomberg, and Treasuries returned 7.3% by Nov. 19, a Bank of America Merrill Lynch index shows.