Soros warns on gold rally, says nothing safe

Billionaire financier George Soros speaks at a Reuters Newsmaker event in New York September 15, 2010.

NEW YORK (Reuters) - Billionaire financier George Soros said on Wednesday that gold prices might continue to rise after hitting record highs this week, but he renewed a warning that gold is the "ultimate bubble."

With economic and fiscal weakness crimping the developed world, Soros said all investments are at risk because "this is a period of great uncertainty, so nothing is very safe."

Regarding gold, he said that after asset classes set new highs, there are almost always immediate reversals that disappoint investors. Soros' hedge fund, Soros Fund Management LLC, has been heavily invested in gold and gold-mining companies.

"Gold is the only actual bull market currently. It just made a new high yesterday. In the present circumstances that may continue," he said at a Reuters Newsmaker event.

"I called gold the ultimate bubble, which means it may go higher. But it's certainly not safe and it's not going to last forever," he said.

Soros made the "ultimate bubble comment" in January at the World Economic Forum in Davos, Switzerland. He no longer is involved in management of his hedge fund.

Spot gold hit a record $1,274.75 an ounce on Tuesday and traded about $10 lower on Wednesday.

As of June 30, the Soros fund held 5.24 million shares of the SPDR Gold Trust, a stake worth about $650 million on Tuesday. Soros' fund was the third-largest in the exchange-traded fund at the end of the second quarter.

The Soros fund also held equity holdings in miners of gold and other minerals that were worth almost $250 million on June 30.

On Wednesday, Soros once again said Germany should do more to encourage economic growth rather than trying to reduce its deficit. But he warned that deficit spending was not a durable solution.

"You got a lot of deflationary forces now in the world and which are mainly due to political pressures," he said. "You can't have increasing deficits forever. It's not sustainable."

In such a difficult environment, the investor, who gained fame on his massive bet against the Bank of England in the early 1990s, said he preferred investments in quality companies that throw off lots of cash over government debt.

"Some blue-chip, steady-earning cash cow companies now yield substantially more than government debt and I would rather own them than government debt," he said.

Soros saw few bright spots in the developed world, but he once more hailed China's prowess as a developing power and said its purchases of the euro, local debt and Greek assets had staunched the European sovereign debt crisis.

"The Chinese came off the fence when the euro was around 120 and started buying the euro, buying Spanish bonds and investing in Greece. So in a way the Chinese saved the euro," he said.

In other comments, Soros said he saw no sign of return to strong growth in the United States, which is struggling to emerge from its worst downturn since World War II.

"If I had to sum it up in one word, I would say: 'Blah.' It may slip into double-dip (recession) or it may not, but it is going to slow down," he said.

"There is no question in my mind because the stimulus is running out, and there is great resistance to any further stimulus."

( Insider video of Soros interview on U.S. economy:

link.reuters.com/qaz73p )

Soros said Japan did the right thing when it intervened in foreign exchange markets on Wednesday to bring down the value of the yen -- a move that lifted the U.S. dollar as much as 3 percent.

"Certainly, they are hurting because the currency is too strong so I think they are right to intervene," Soros said.

Japan sold yen in the market for the first time since 2004 and said it would do so again to prevent the currency's rise from hurting exporters and threatening a fragile economic recovery.

"They had a real estate boom and then a crash in banking ... It's 20 years now, and they are still just struggling along," Soros said.

( Insider video of Soros interview on yen: link.reuters.com/wuv73p )

(Writing by Herbert Lash and William Schomberg; Editing by Dan Grebler)