Gold: The Major Pros and Cons for Investors

Is George Soros getting out of the Gold (NYSE:GLD) market? According to recently released public filings and comments from industry insiders, the hedge fund tycoon is selling off the gold assets from his portfolio.

Gold (NYSE:GLD) prices hit their all time high earlier this month, trading at $1,575.79 per troy ounce, prompting market analysts to suggest that prices for the precious metal (NYSE:DBP) may be bubbling over. With Soros leaving his proverbial pick at the doors of the financial market gold mines, is it finally time for other investors to follow suit; leaving the gold bubble on the brink of a burst?

As concerns continue to flare over stagnant economic recovery in the US and the troubling state of the dollar (NYSE:UDN), some believe that gold is still a safe bet. However, Fed Chairman Ben Bernanke’s recent statements regarding the impending end of the Fed’s cash injection initiative in June can be seen as a point to the contrary, as the Fed’s show of confidence for the immediate future of the US economy may prompt a slide in gold prices in the coming months.

According to Tom Kendall, a precious metal analyst at Credit Suisse (NYSE:CS), Soros and other’s leaving the gold market, “are still the exception,” and today wall street seems to agree, with gold prices up $2.00 in early trading. Other expert investors, such as hedge fund manager John Paulson, are sticking with their guns for now, and have retained gold (NYSE:GLD) as a major asset in their  funds.

Further substantiating the merits of holding on gold are Q1 Consumer reports from China (NYSE:FXI) and India (NYSE:IFN), among the largest emerging markets (NYSE:EEM) for gold consumption, which saw rises in demand for gold-related goods of 47% — China — and 11% — India — respectively. Market analysts have taken this growth in gold consumption as re-assurance that gold prices have yet to peak, or at least as a hedge against gold prices falling too far if the bubble does eventually burst. Some insiders have suggested that the bull market for gold has yet to reach its high point, arguing that positive consumption indicators in emerging markets could push gold prices to all-time highs near or above $1,800 by year end.

Despite the promise of positive consumer data for gold (NYSE:GLD) demand, recent and expected forthcoming action from major economic players (namely the big banks) may halt this year’s gold run in its tracks.

The economic reverberations of QE2 pose the greatest threat to the immediate prospects of the gold market, with many banks set to hike interest rates in efforts curtail inflation, investors trading in dollars for gold may not be getting the same bang for their buck. Members of the World Gold Council have expressed concerns over the effects of banking policy changes, warning that rising interest rates could have a limiting impact on further investment in the gold (NYSE:GLD) market.

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