Goldfinger.



     For over four thousand years, it served as a symbol of power, glory, greatness, grandeur and status. Civilizations and empires lusted after it, even as it ignited wars and destroyed cities. It embellished the walls of palaces and tombs alike and its lustre drew men towards it like moths to a candle flame. Over the last century, gold has been hailed as the asset class of the highest echelon. Corporate prophets even went as far as calling it the ultimate bubble. Alas, no longer.
     In 2013, that dream run came to a resounding end. Gold, which has rivalled equities over the past 3 decades as the best-performing asset class, plunged close to 30%, wiping out the gains that it had notched up in the past 2 years. The global crash of gold prices was eerily similar to the fate that silver suffered in the 1980s, following the devious trades of the Hunt brothers, who tried to corner and monopolize the silver market. Ever since the US went off the Gold Standard in 1971, gold has virtually seen an unstoppable rally but the asset class, which has always been perceived by governments as a natural hedge against inflation, saw its prices tumble from over $1900/oz to a little over $1300/oz, in the short span of a week. That crash, however, is not devoid of explanation and a multitude of factors snowballed into the terrifying tumble of gold prices worldwide.
     With Europe still suffering from the effects of a crushing recession, the deficits of some of member nations of the European Union have spiralled out of control, even as austerity measures struggle to kick in with full force. For now, the Scandinavian countries are in a safe spot and economic giants like Germany and France are managing to keep their heads above water. The PIIGS (Portugal, Italy, Ireland, Greece and Spain), however, haven’t been that lucky and now, Cyprus has joined the party. With a major banking crisis and a crippling deficit, the Cyprian Government is mulling over the possibility of dumping its gold reserves in the open market. This would potentially create a glut of over half a billion dollars worth of gold in the global bullion market. The Cyprian Parliament will take a decision on the matter soon but considering Cyprus’ financial health, the move to dump gold is virtually sure-fire. If or when Cyprus does pull the plug on its gold, the other PIIGS, with their ballooning deficits, are sure to follow suit, which would lead to a much larger crash in gold prices. Spain, for instance, has a trillion dollar deficit to rein in and it would certainly use its gold reserves to ease the strain on its economy. Cyprus, however, is a nation in its own right and the Cypriot crisis unfolded only in March. After all, nations can and sometimes do topple markets by themselves. However, when it comes to the crash in gold prices, the trail leads to a certain individual, who had a major role to play. But that said individual is no ordinary man. The subject in question actually managed to break the Bank of England in 1992.
     In 1992, the world began to recognize the financial insight and might of George Soros. Soros, one of the world’s greatest investors and the founder of the Quantum Fund, took a sizeable position against the British Pound. When the British Government refused to raise interest rates or let their currency float in the same manner as other European countries, the British Pound crumbled and Soros made a fortune of over a billion dollars. His contrarian call against the British Pound worked wonders and this time around, Soros has zeroed in on the ultimate asset.
     Soros, who has always declared that he invests wherever he sees a bubble, was bullish on gold for the past 12 years and he built up a sizeable position in the world’s largest gold exchange traded fund (ETF), SPDR. However, in the closing quarter of 2012, Soros liquidated over half of his holdings in SPDR and declared his bearish outlook on the asset. Moreover, Soros’ position on gold, which was valued at a few billion dollars, was no meagre one. When investors and fund managers learnt that Soros had cashed in, herd mentality set in and gold ETFs worldwide witnessed massive selling. The Cypriot banking crisis and the fiscal deficit troubles in the Eurozone, of course, compounded the problem. Several ETFs even had a problem delivering physical gold against the widespread redemptions.
     And it wasn’t just Soros who was at the centre of all the mayhem. PIMCO or Pacific Investment Management Company, the world’s largest bond fund, has also turned negative on bullion and this stance would have surely manifested itself in the liquidation of some its sizeable gold holdings. Sadly, the global bullion market, as large as it may be, is certainly not strong enough to withstand the combined financial might of a pair of punters like George Soros and PIMCO.
     After crumbling all the way to a level of a little over $1300/oz, gold managed to find some support and it has crossed the $1400/oz barrier, even as value buying sets in. Gold, which normally moves in the opposite direction as crude oil, seems to have mirrored the fall in crude prices this time around. This may just be an aberration or it may be an omen for a much larger and more catastrophic double dip recession on a global scale. After all, gold and crude oil plunged hand-in-hand in 2008, in the 1980s and in 1929, just before recession and depression descended on the global economy. Gold prices may have stabilized for now but if the European PIIGS and Cyprus choose to dump their gold, all hell will certainly break loose and economic gloom and doom will surely become the order of the day.  
     In the eponymous 1964 flick, Auric Goldfinger intended to radioactively contaminate the United States’ gold reserves at Fort Knox. This would have triggered a surge in gold prices worldwide, leading to a multi-fold increase in Goldfinger’s wealth, which was largely denominated in gold. However, before he could succeed with his devious plan, Goldfinger was vanquished by Sir Sean Connery, in the avatar of a certain Bond. James Bond.
     But that was back in 1964. This time around, in 2013, Goldfinger, having cashed out of his gold holdings just before the horrendous crash in which played no small role, seems to have come out on top. Just like in 1992, the financial world is in awe of Goldfinger’s timing and his contrarian call on the asset on which he had a bullish stance for well over a decade. And Goldfinger, obviously, is laughing all the way to the bank. Oh wait. Did I say Goldfinger? I meant Soros. George Soros.   

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