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BookmarkBillionaire investor George Soros has piled more of his $30bn fund into gold as UK government borrowing costs fell to a record low amid concerns about global growth.
Mr Soros also warned that if Britain voted to leave the EU on June 23 it would mark the end of the European project.
“If Britain leaves, it could unleash a general exodus, and the disintegration of the European Union will become practically unavoidable,” he said.
UK benchmark gilt yields fell to 1.218pc, the lowest on record, while German 10-year bund yields also dropped to a fresh low of 0.0234pc as growth jitters pushed investors towards low-risk sovereign debt.
The flight to safety ended a week-long rally for global stocks and commodities as investors reassessed the global outlook. Gold prices climbed while oil fell more than 1pc.
George Soros
In the first quarter of 2016, Mr Soros’s fund bought just over a million shares in SPDR Gold Trust Credit: Reuters
“The low yield on government bonds paints a pretty pessimistic picture of the global economy, and suggests we are set for an extended period of low or negative inflation, and weak economic performance,” said Laith Khalaf, senior analyst at Hargreaves Lansdown.
Mr Soros, dubbed “the man who broke the Bank of England” for his multi-billion bet against sterling in the 1990s, is reportedly selling more shares and betting “big” on bearish investments, including the precious metal.
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.
“China continues to suffer from capital flight and has been depleting its foreign currency reserves while other Asian countries have been accumulating foreign currency,” Mr Soros said in an email to the Wall Street Journal.
“China is facing internal conflict within its political leadership, and over the coming year this will complicate its ability to deal with financial issues.”
Investors buy gold during times of panic because it is seen as a store of value and viewed as an inflation hedge.
Regulatory filings show that in the first quarter of 2016, Mr Soros’s fund bought just over a million shares in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, valued at about $123.5m.
Mr Soros’s fund also bought 19m shares in Barrick Gold, the world’s largest gold producer, according to filings with the Securities and Exchange Commission.
Mr Soros, who has previously warned that the EU is “on the verge of collapse” because of its handling of the Greek and refugee crisis, said the prospect of a British exit from the bloc posed a fresh threat.
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But the billionaire said the strength of the pound in recent weeks suggested a leave vote was unlikely
“I’m confident that as we get closer to the Brexit vote, the ‘remain’ camp is getting stronger. Markets are not always right, but in this case I agree with them.”
Investors have ploughed money into haven assets as expectations of a US interest rate rise this summer have receded following disappointing US jobs growth in May.
John Wraith, head of UK rates strategy at UBS said uncertainty surrounding the outcome of the EU referendum was also causing concern about the UK economy “above and beyond” the global factors.
“The UK’s been slowing. It’s had a pretty soft first quarter, it looks like the second quarter will be softer still. And it’s supportive for government bonds because people want to get out of risky assets at these times,” he said.
Bill Gross, a portfolio manager at Janus Capital, noted that $10 trillion of global bonds now had negative yields.”This is a supernova that will explode one day”, he said.
Gold
George Soros has piled more of his $30bn fund into gold
It came as Mario Draghi, the president of the European Central Bank, warned that time was running out for governments to implement vital reforms to make economies more competitive in an era of demographic change.
He said it was vital that policymakers did more to reduce long-term unemployment, and that structural reforms could boost growth by lowering jobless rates across Europe.
“There are many understandable political reasons to delay structural reform, but there are few good economic ones. The cost of delay is simply too high.”
In a thinly-veiled criticism of eurozone governments, he said very little progress had been made since the Five Presidents’ report was published last summer on how to deepen economic union in the eurozone.
“What is now crucial is that we move towards a ‘common consensus’ on ‘what the necessary reforms are’, how countries should implement them, and then, that the process starts,” he said.
By Szu Ping Chan
June 10, 2016
