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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.


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.

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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.

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About the Author
Investing Reporter

David Berman has been writing about business and investing since 1995. He has written for a number of magazines, including Canadian Business and MoneySense. He worked at the Financial Post as an investing writer and daily columnist before moving to the Globe and Mail in 2008. More

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