At the current price of about $156 a share, these are new investments of about $88m of Mr Soros’ cash and more than $700m from Mr Paulson’s funds. These are significant positions.
However, Mr Soros’s words of wisdom on the gold price have not always been worth following. At Davos in 2010 he declared that “The ultimate asset bubble is gold”. The price was at about $1,100 at that time. Also, Mr Paulson’s gold fund has slumped by almost a quarter this year.
The bears were tossed some scraps in the latest demand trend report from the World Gold Council (WGC), which looked at demand trends in the second quarter of this year.
Total gold demand in the period fell by 7pc to 990 tonnes on a year-on-year basis and 10pc quarter-on-quarter.
For the first half of the year, gold demand of 2,098.8 tonnes was 5pc lower than in the first half of 2011, but 14pc above the five-year average.
“The second quarter of the year was a period of broad sideways consolidation for the international gold price,” the WGC said. “While some investors used this pause in the price to add to their investments, others chose to liquidate and realise profits on their holdings until a stronger price trend emerged,” the gold advocate added.
The net effect of these buyers and sellers on gold funds, however, was almost zero. Outflows from ETFs in the second quarter amounted to just 0.8pc.
The main bull point in the WGC analysis was that demand from central banks had accelerated during the quarter.
The so-called “official sector” saw its gold reserves increase by 157.5 tonnes, the largest quarterly net purchase by the sector since it became a net buyer in the second quarter of 2009.
Last week, there was also some glimmers of hope for investors in gold equities, which have slumped significantly this year.
African Barrick Gold’s shares jumped after its parent – Canada’s Barrick Gold – revealed a bid approach from state-owned China National Gold. This is interesting from the perspective of gold miners, which look likely to see a period of consolidation, but it is also interesting because of China’s relationship with gold.
China has a lot of its reserves in US dollars. As of June this year, data from the US Treasury showed the country held $1.2 trillion of US treasury bills. The country has long been rumoured to be seeking to diversify the reserves held at the People’s Bank of China. Buying gold mines could help with this task.
However, most of the bulls currently have their eggs in the quantitative easing basket, waiting for a new round of money printing to devalue the dollar and boost the gold price. Should QE3 fail to emerge, there could be some big disappointment.
However, owning some gold as a hedge against inflation is a sensible investment strategy. For the first time in a while gold equities are looking interesting. If China’s appetite for gold increases, there could be more acquisitions ahead.
Could copper collapse?
Could there be more downside in the copper price? Capital Economics certainly thinks so – it is forecasting a copper surplus this year.
“This view contrasts with the expectations of almost all analysts,” Ross Strachan, a commodities analyst at Capital Economics, said. “For example, the International Copper Study Group (ICSG) ... estimates that the market will be in deficit in 2012 for the third year running.”
Mr Strachan expects the price to fall to $6,000 (£3,800) a tonne, down from its current trading range at about $7,500. He thinks the bullish view is based on an overestimation of China’s consumption of copper. “This is because it does not take account of a substantial increase in bonded warehouse stocks,” Mr Strachan explains. He says that “this increase is mainly due to purchases for financial purposes” for speculation or as collateral.
“Not only is this type of demand more volatile, and is likely to fall due to the loosening of credit conditions in China, but it can also become a source of supply,” he adds.
However, copper prices edged higher last week, bolstered by upbeat US consumer confidence data. On Friday three-month copper futures on the London Metal Exchange ended at $7,539 a tonne, up from $7,449 at the close on Thursday.
Platinum rises amid South African violence
The platinum price rose sharply to a six-week high on Friday, after police killed a number of striking workers at one of Lonmin’s mines in South Africa.
The country is the world’s major producer of the metal used in catalytic converters and jewellery, and fears are mounting that significant supply disruption could occur if trouble spreads. Output at the Marikana mine, which is at the centre of the current troubles, has lost production of about 15,000 ounces since the trouble started on August 10.
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