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Soros warns that gold is the ultimate bubble.  It makes for a great headline, but is that what he really meant, or is he once again manipulating a currency for profit.  I will look at both sides and uncover the truth behind George’s warning that gold is the ultimate bubble.

Is Soros Manipulating The gold Market?

Once again, the powers that be are attempting to hammer gold through support at $1,074, but so far, every time gold dips to that range, buying comes back in and pushes gold back into the $1,080’s.  As I have said before,  if  $1,074 falls, the next support is $1,025 with $990 being as far as this round should go with all things being equal.  The physical buyers keep stepping up to the plate every time gold dips below $1,080, making the chances for a consolidation at this level a distinct possibility.

Gold Is Being Put To The Test

The big guns are out playing in the markets as this next article points out.

Davos 2010: George Soros warns gold is now the ‘ultimate bubble’

Gold is now “the ultimate bubble”, billionaire investor George Soros has declared, sparking fears that prices for the precious metal may soon suffer a tumble

By Edmund Conway, Telegraph.co.uk, Jan 28, 2010

Mr Soros, arguably the most famous hedge fund manager in history, warned that with interest rates low around the world, policymakers were risking generating new bubbles which could cause crashes in the future. In comments delivered on the fringe of the World Economic Forum, Mr Soros said: “When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment. The ultimate asset bubble is gold.”

Gold prices last month reached a record level of just over $1,225 per ounce,  having risen around 40pc last year. Investors are piling into the metal amid fears both of potential inflation and fading faith about the stability of previously-assumed safe assets such as government debt. However, the chairman of Barrick Gold, the world’s biggest producer, Peter Munk, said he expected the metal’s upward march to continue.

Mr Soros added that by proposing imminent “exit strategies” from the unprecedented support handed out to troubled banks and consumers, governments around the world could be in danger of triggering a double-dip in the global economy. In comments which will reinforce Labour’s plan to fight the next election on promises not to start raising taxes or cutting spending too soon, he said that it was still too early to slash budget deficits.

He said: “I think that since the adjustment process to the recession is incomplete, there is a need for additional stimulus. Some countries, like the US and European countries, have plenty of room to increase their deficits. The political resistance to doing so increases the chances of a double dip in the economy in 2011 and after that.”

The Conservatives have pledged to start cutting public spending almost immediately after this year’s election, but their promise was weakened earlier this week by an International Monetary Fund report warning that it may still be too early to begin this process. Mr Soros also came out in favour of Barack Obama’s plan to split up large US banks, but said that proposals to tax the banking system could also endanger the recovery.

It is so interesting to me to watch how governments and globalists play the press  as they move in and out markets squeezing money out of the lemmings that they panic into selling at the wrong time.  Make no mistake about it, George Soros is not a global philanthropist who is trying to protect you from losing your money in the “gold bubble”.

Listen to Soros explain the reforms that he would like to see in his own words!

I contend that financial markets always present a distorted picture of reality. Moreover, the mis-pricing of financial assets can affect the so-called fundamentals that the price of those assets is supposed to reflect. That is the principle of reflexivity.

Instead of a tendency towards equilibrium, financial markets have a tendency to develop bubbles. Bubbles are not irrational: it pays to join the crowd, at least for a while. So regulators cannot count on the market to correct its excesses.

The crash of 2008 was caused by the collapse of a super-bubble that has been growing since 1980. This was composed of smaller bubbles. Each time a financial crisis occurred the authorities intervened, took care of the failing institutions, and applied monetary and fiscal stimulus, inflating the super-bubble even further.

I believe that my analysis of the super-bubble offers clues to the reform that is needed. First, since markets are bubble-prone, financial authorities must accept responsibility for preventing bubbles from growing too big.  Alan Greenspan and others refused to accept that.  If markets cannot recognize bubbles, the former chairman of the US Federal Reserve asserted, neither can regulators – and he was right. Nevertheless authorities have to accept the assignment.

Second, to control asset bubbles it is not enough to control the money supply; you must also control credit. The best known means to do so are margin requirements and minimum capital requirements. Currently they are fixed irrespective of the market’s mood because markets are not supposed to have moods. They do, and authorities need to counteract them to prevent asset bubbles growing too large. So they must vary margin and capital requirements. They must also vary the loan-to-value ratio on commercial and residential mortgages to forestall real estate bubbles.

These progressives have only one answer to everything, more control.  Once we get rid of these pesky freedoms,  everything will be fine.  I think I will side with Ludwig von Mises on where all of this is going.

“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”

At some point in this game, China is going to step in a scoop up a large chunk of the available gold on the market.  When this happens gold will launch dramatically to the upside and I can only hope that Soros missed the call!

What To Do Now?

If you sold by thirds into the last upswing and bought by thirds into this down turn, you should have dramatically increased your shares and at worst you would have bought  too  soon.  There is no need to worry now, because gold is going much higher this year!

Don’t be manipulated into selling your shares now.  Hold tight and you will soon be richly rewarded.  If you still have a third left, now would be a good time to pick up more quality miners while they have been beaten down.

On the physical gold side, I would not be a seller, but I would accumulate as much as can be afforded at these low rates.  Gold reflects the value of the dollar and there are no signs out there that the government is going to return to financial sanity any time in the near future.  “The Community Organizer In Chief’s” state of the union address clearly pointed out that the progressives intend to continue down the road of tax and spend that they love so dearly as long as it grows government and increases their power.  Come November they should pay a severe price for their ideology’s  ineptness!

Take heart, because even though Soros warns gold is the ultimate bubble, he is  looking to profit from it on a huge scale.

Till next time, good luck and good trading!

Also Noteworthy:

• Is Soros Trying To Break The Buck?
• Is The Gold Correction Over?
• Golden Bubble?
• Gold and Derivatives
• Barrick Unhedges: Stock Soars