George Soros is a man who has outwitted governments before. In 1992 he made more than $1bn by short-selling sterling, as the UK government was eventually forced to withdraw the pound from the European Exchange Rate Mechanism. So when he speaks, investors listen.

Last month, at the World Economic Forum in Davos, Switzerland, he declared that gold is the ultimate bubble. Fears were quickly sparked that the precious metal would tumble.

Various writers, fund managers and investors worked themselves into a frenzy. Many jumped ship and within a week we were trading down to levels last seen in October, almost $1,050 an ounce.

But one canny investor, it seems, was buying. George Soros

A fortnight or so after his ultimate bubble quote hit the headlines, it emerges that George Soros has actually more than doubled his investment in gold. He now owns some 6.2 million shares in the US-listed gold exchange traded fund, SPDR Gold Trust (NYSE: GLD ), worth some $680m. His investment vehicle Soros Fund Management also increased its holding in the Canadian gold miner Yamana (LSE:YAU ).

If you are buying something, you want to get it for the cheapest possible price. If you are selling something, you want to get the most money for it. So an old market trick – and I am not for a second saying Soros was doing this – is, if you are buying, to talk a market down, and if you are selling, to talk it up.

You dont walk into a souk and say: Ill tell you what, that mug is the nicest mug Ive ever seen, the future is really bright for mugs, Id like to pay you too much for it. Rather, you frown a bit, mutter about the shoddy workmanship and grudgingly offer a low price. Nor, if you happen to work in a souk, do you say: Look at my carpet. Its really horrible, and whats more Ive got loads of them, more than I know what to do with. Do you want to buy one? Rather, you smile and declare that its weave is unrivalled. Its pretty basic stuff.

Why has the IMF announced its selling its gold?

So you have to wonder why the International Monetary Fund (IMF) has told everyone that its about to sell 191 tonnes of gold. Dont they recall that Gordon Brown did something similar at the start of this decade? By forewarning the market of his plans to sell half of Britains gold, he succeeded in securing the worst possible price for our bullion.

The IMF is purportedly raising funds for its operations to help near-bankrupt countries. So it should want to get the highest price possible for its gold. Yet – in announcing the sale beforehand (and I know there are probably all sorts of regulations saying it should) – it is doing precisely the opposite of what a canny player, such as Soros, would do.

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Either it is making the kind of blunder that is typical of large, non-profit state bodies, or it is deliberately trying to knock the price down, as the Gold Anti-Trust Action Committee (GATA) would have us believe. Indeed GATA suggests that the IMF doesnt even have the gold to sell. Where is it stored? they ask, not unreasonably. But despite GATAs compelling arguments, I still find incompetence to be the more likely explanation.

Should we be worried about gold?

So should we be worried about the outlook for gold, if the IMF is selling another 191 tonnes? I dont think so. Lets take a look again at what Soros actually said in his bubble speech.

First he said: When interest rates are low we have conditions for asset bubbles to develop. The past decade or so of rate-slashing and serial bubble-blowing by central banks has proved this point beyond doubt. Soros continues: they [asset bubbles] are developing at the moment. The ultimate asset bubble is gold. Policy-makers are using exactly the same methods to get us out of this crisis as they used after the dotcom bust. But they are running out of bubbles to blow. Gold is about the only one left. Im convinced that is what Soros meant by ultimate. Particularly as he later added that when he sees a bubble, I rush out and buy. It seems thats just what he has done.

And why wouldnt he? Gold is a particularly appealing investment, given that cash is being debased and pays no decent interest. This bull market is almost ten years old now. The bubble is, shall we say, at least partially inflated. But it is nowhere near bursting point. We are far from the blow-off top that usually characterises the end of a bull market. Soros seems to view things the same way. And even if you think his comments on gold were bearish, its still probably best to do as he does, not as he says.

Its best to do as Soros does

You just need to look at the recent history of central bank and IMF gold sales to see why. When the IMF, which is the worlds third-largest gold holder behind the US and Germany, sold its last tranche of 200 tonnes (to India), the gold price quickly moved up 15% from $1,040 to over $1,200. Looking at the bigger picture, since Gordon Browns bottom-marking sale in 1999, the following decade has seen the greatest offloading of central bank and IMF gold in history. Heres what the gold price has done in that time.

So as far as gold goes, my moneys on Soros getting his timing right, rather than the IMF. Itll be a rocky ride, but I dont think theres too much to worry about.

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