Tags: Soros | gold | China | safe haven

Soros: ‘Gold Was Destroyed as a Safe Haven’

By John Morgan   |   Monday, 08 Apr 2013 10:30 AM

Gold lost its safe-haven status during the recent euro crisis, but central banks will continue to buy it, according to investor George Soros.

In an interview with the South China Morning Post that otherwise focused on prospects for China, Soros seemed to sound a note of caution on the precious metal.

“It has disappointed the public, because it is meant to be the ultimate safe haven. But when the euro was close to collapsing in the last year, actually gold went down, because if people needed to sell something, they could sell gold,” Soros said.

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“Therefore they sold gold. So gold went down together with everything else.”

Soros noted that gold is very volatile on a day-to-day basis, but its price may be trendless over the long term.

“Gold was destroyed as a safe haven, proved to be unsafe. Because of the disappointment, most people are reducing their holdings of gold. But the central banks will continue to buy them, so I don’t expect gold to go down. If you have the prospect of a crisis, you will have occasional flurries or jumps.”

Soros’ view on gold view differs from the opinions of other expert opinions, who view gold’s recent weakness as being due to its lack of volatility and to the increase in U.S. real interest rates, according to Business Insider.

“That being said, his point about how gold is not a safe haven is spot on,” Business Insider concluded. “During overall weakness, when central banks are trying to push down real interest rates, gold seems to benefit. But in a real panic, people sell gold to raise cash.

Soros told the Morning Post he is cautious about China’s prospects because the country is maturing and needs to transform itself from an export-driven into a consumer-driven nation with as little economic dislocation as possible.

“It is going to be a very difficult transformation, because the household consumption is only one-third of the Chinese economy. Exports and investments are two-thirds. The growth of one-third cannot make up for the slower growth in the two-thirds,” Soros predicted.

“Therefore, the overall growth rate will have to be significantly slower than it has been up to now. That is a very important point.”

His advice on being an investor in China? “I think I would be very cautious in the near term — the next year or so.”

Soros’s view is that China’s currency, the renminbi (RMB), is hardly destined to become a world currency overnight.

Although the Chinese government is eager to see the RMB used in international transactions, “the domestic market will have to become much more mature and the international markets will also need to be better controlled, become more stable, before the RMB would become a global currency,” he predicted.

Soros said China’s financial regulatory system actually does a better job than those in Western nations.

“I think the Chinese regulators have a much closer and more intimate knowledge of what goes on inside the banks.

“The lack of detailed knowledge in the West is quite amazing. And that was the reason why things went so wrong,” he said of the economic problems that have plagued global regions such as Europe and the United States in recent years.

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