U.S.-Hungarian businessman George Soros, chairman of Soros Fund Management gives a TV interview during the United Nations Climate Change Conference in Copenhagen on December 10, 2009.AFP / Getty Images
There they go again: After a lacklustre start to the trading day, stock indexes took a turn for the worse in mid-morning activity on Wednesday, with commodity producers leading the decline.
The S&P/TSX composite index was recently down 158 points or 1.2 per cent, to 13,534. The index plunged more than 240 points on Tuesday. The S&P 500 was down 11 points or 0.8 per cent, to 1345.
In both cases, energy stocks showed the biggest drop, falling about 2 per cent. Materials were also down significantly, falling more than 1 per cent. The declines come as commodity prices virtually across the board swoon.
Oil fell to $109.25 (U.S.) a barrel, down $1.80. Gold fell to $1,527 an ounce, down $9.50. Silver fell 6.7 per cent, tumbling below $40 an ounce not long after approaching a record high of about $50, bringing its decline this week to nearly 18 per cent - while cotton, copper and natural gas also declined.
Why the carnage? Disappointing economic reports on private-sector U.S. job gains don't help. As well, Tuesday's bigger-than-expected rate hike by India's central bank has created concerns about slowing economic growth among developing-market titans, which are big consumers of commodities.
But the George Soros factor might be instilling the most fear. According to the Wall Street Journal (which used off-the-record sources) the influential investor has been selling his gold holdings through his hedge fund - potentially marking a fundamental shift away from precious metals. According to Bloomberg News, a spokesperson for Mr. Soros declined to comment on the matter.
Mr. Soros had been an enthusiastic buyer of gold, at one point becoming the seventh-largest holder of the SPDR Gold exchange-traded fund - essentially riding what he believed was "the ultimate asset bubble" and protecting himself from the threat of deflation. (Many other investors use gold as a hedge against inflation and economic calamity.)
The Journal reports, though, the Mr. Soros no longer believes deflation is a threat, and continues to argue that rising interest rates will take care of any inflationary threats.
However, the Journal also pointed out that another high-profile gold investors remains wedded to the investment. John Paulson told investors on Tuesday that he believes gold will rise to $4,000 an ounce over the next three to five years.
Right now, though, investors appear to be siding with the Soros report.
David Berman