Famed for making a cool billion US dollar by “breaking” the Bank of England in 1992, semi-retired George Soros had warned that we’re about to see something that hasn’t happened in “80 years”. He spoke about the financial apocalypse during the World Economic Forum in Davos, Switzerland in January this year.

 

Soros made the prediction based on 3 major factors – the deflation crisis in China, the tumbling oil prices and currency devaluation. He has been shorting and selling almost everything – stocks and Asian currencies. Anticipating the repeat of 1929-1930 Great Depression to start this year (2016), Soros has been buying gold like crazy.

The legendary currency speculator’s Soros Fund Management bought 19.4 million shares worth US$263.7 million of gold giant Barrick Gold – the world’s largest gold producer – in the first quarter of the year, making Soros the company’s top stockholder. As a result, he has gained more than US$90 million (£62.3 million; RM366.7 million).

 

Regulatory filings 13F also show that in the first quarter of 2016, Mr Soros’s fund bought 1.1-million “call options” in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, valued at about US$123.5 million. The billionaire said he had stepped-up purchases of gold because he believed continued weakness in China would keep global inflation rates around the world dangerously low.

Soros told the Wall Street Journal – “China continues to suffer from capital flight and has been depleting its foreign currency reserves while other Asian countries have been accumulating foreign currency. China is facing internal conflict within its political leadership, and over the coming year this will complicate its ability to deal with financial issues.”

 

Although Mr Soros warned that if Britain voted to leave the EU on June 23 it would mark the end of the European project, he believes Brexit will fail because the British pound has stayed strong in recent weeks. Not only Soros was buying gold and dumping equities, billionaires Carl Icahn and Stanley Druckenmiller were reportedly betting on a market crash.

But why was Soros buying gold such a big deal? That’s because he hadn’t involved in active trading since 2007, when he became worried about housing and placed bearish wagers. Over the next two years, his bets netted more than US$1 billion of gains. So, it’s about 10 years since the last time the infamous currency speculator goes back to his trading desk.

 

Attracted by perhaps his last opportunity to make serious money, the billionaire has personally directed a series of big, bearish investments for Soros Fund Management LLC, which manages US$30 billion for Mr. Soros and his family. He has sold stocks and bought gold and shares of gold miners, a commodity often view as a haven during times of turmoil.

Insiders said Soros hasn’t done much investing of his own, unless his fund managers screwed-up and suffered losses. But that changed earlier this year when Mr. Soros began spending more time in the office directing trades. His hands-on is seen as a reflection of gloomier outlook than many others on Wall Street.

 

Although the U.S. stock market has crawled back toward record levels after troubles early this year and Chinese markets have stabilized, Mr. Soros remains skeptical of the Chinese economy because it is still slowing. Besides worries that new troubles will arise in China partly because of lack of transparent political system, Beijing has also backtracked on some efforts amid turbulent markets.

On top of gold which has climbed 19% this year. Soros Fund Management also bought a million shares of miner Silver Wheaton Corp. in the first quarter, a position that has increased 28% so far in the second quarter. Soros also doubled his bet against the S&P 500, and now owns 2.1 million put options on the SPDR S&P 500 ETF.

 

Still, he has investments worth over $80 million apiece in eBay and Zoetis. During the first quarter Soros also purchased new stakes in Apple, Yahoo, Gap and United Continental, though those are relatively tiny positions. Another clue from Soros: the value of his hedge fund’s holdings shrank from US$6.1 billion at the end of 2015 to US$4.5 billion as of the end of the first quarter.

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 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. True, Soros is a genius but he’s also been wrong more than once.

 

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June 10th, 2016 by financetwitter

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