Soros brands gold 'the ultimate bubble'

George Soros, one of the world's most successful investors has declared that gold is now the 'the ultimate bubble'.

Watch out: George Soros has called gold the 'ultimate bubble'

The billionaire hedge fund manager made the comment at the World Economic Forum in Davos, Switzerland.

Gold, typically viewed as the ultimate defense in wealth preservation, has witnessed its value surge during the financial crisis.

Worldwide, most precious metals have been enjoying strong gains as a result of the low interest rate environment and accommodative monetary policy.

Guide: Investing in gold

But Soros cautioned that with interest rates in the doldrums globally, leaders were in danger of creating new bubbles which in turn could spur on further future crashes.

He 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.'

Fears of inflation - rising prices destroy the value of paper assets such as cash, shares and bonds - have driven investors to solid assets such as gold.

Bullion has benefited hugely from the weakness of the dollar over the past year but fallen recently as the dollar has gained. The spot gold price hit a closing day high of £1,216 on 2 December but has since fallen by 10.5% to close at $1,088 yesterday.

The $10 fall in the gold spot price yesterday came as the dollar strengthened again on fears of Eurozone weakness. Fresh concerns over Greek debt and its effect on the euro helped to lift the dollar to a six-month high against it.

Gold's rich vein of form

Gold has enjoyed an incredible run over the past decade making it one of the world best performing investments, rising from a low of $252 in 1999.

The cost of bullion surged by almost 40% in 2009 and in early December, after India moved to substantially beef-up its reserves the price of gold hit a new high. The spot price hit a trading high of $1,227 an ounce on 3 December before pulling back to below its opening level of $1,216.

Concerns increased throughout 2009 that programmes of quantitative easing - electronic money creation - may stoke future inflationary pressures helped gold's surge.

Those fears have not gone away and Soros commented that the upcoming exit strategies of governments from quantitative easing programmes could risk sending the global economy back into a double dip recession.

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.'

Here are the key dates tracing gold's historic rise... Source: Reuters

* August 1971 - United States President Richard Nixon takes the dollar off the 'gold standard', which fixed paper notes' value to a pre-set quantity of gold. It had been in place, with minor modifications, since the Bretton Woods Agreement of 1944 fixed the conversion rate for one troy ounce of gold at $35.

* August 1972 - US devalues dollar to $38/ounce of gold.

* March 1973 - Most major countries adopt floating exchange rate system.

* May - US devalues US dollar to $42.22 per ounce.

* January 1980 - Gold hits record high at $850 per ounce. High inflation because of strong oil prices, Soviet intervention in Afghanistan and the impact of the Iranian revolution, prompts investors to move into the metal.

* August 1999 - Gold falls to $251.70 on fears of central banks reducing reserves, and mining companies selling gold in forward markets to protect against falling prices.

* October 1999 - Gold reaches a two-year high at $338 after agreement to limit gold sales by 15 European central banks. Market sentiment toward gold begins to turn more positive.

* February 2003 - Gold reaches a four and a half year high on safe-haven buying in run-up to conflict with Iraq.

* December-January 2004 - Gold breaks above $400, levels last traded in 1988. Investors turn to gold as risk insurance.

* November 2005 - Spot gold breaches $500 for the first time since December 1987, when spot hit $502.97.

* April 11, 2006 - Gold surpasses $600, the highest since December 1980, with funds and investors jumping into commodities on a weak dollar, firm oil prices and geopolitical worries.

* May 12 - Gold prices peak at $730 an ounce with funds and investors pouring money into commodities on a weak dollar, firm oil prices and political tensions over Iran's nuclear ambitions.

* June 14 - Gold falls 26% to $543 from its 26-year peak after investors sell out of commodity positions.

* Nov. 7, 2007 - Spot gold hits 28-year high: $845.40/ounce.

* Jan. 2, 2008 - Spot gold breaks above $850.

* March 13 - Benchmark gold contract trades over $1,000 for the first time in the US futures market.

* March 17 - Spot gold hits an all-time high of $1,030.80 an ounce. US gold futures touch record peak of $1,033.90.

* Sept. 17 - Spot gold rises almost $90/ounce, a record one-day gain. Investors seek safety amid equity market turmoil.

* Feb. 20, 2009 - US gold futures rise back above $1,000 an ounce to a peak of $1,005.40 as investors turn to gold as major economies face recession and equity markets tumble.

* Sept. 8 - US gold futures hit $1,000 an ounce for the first time since February as the dollar's weakness, concerns about the sustainability of global economic recovery and worries about future inflation underpinned sentiment.

* Nov. 3 - Gold crests $1,080 an ounce, defying dollar strength as the International Monetary Fund's 200-tonne sale of gold to India's central bank boosts sentiment.

* Nov. 6 - New York gold futures rise to a record above $1,100 as the dollar eases in the wake of weaker-than-expected US non-farm payrolls data, while spot gold hits a record high at $1,100.90 an ounce.

* Nov 26 - Spot gold rises above $1,192.60 per ounce, extending gains from the day before.

* Dec 1 - Gold hits record highs of $1,198.70 an ounce in Europe, as the dollar weakens against a basket of currencies after policy comments from the Bank of Japan.

* Dec 3 - Spot gold price reaches $1,227 per ounce