Special Report December 19, 2010, 8:30PM EST

Soros Gold Bubble at $1,375 as Miners Push Each Button to Tears

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As much as half of the gold in exchange-traded funds may be held by individual investors, according to BlackRock, the world's largest money manager.

"Your little guy is going to get hit by the doorknob on the way out," Williams said.

Driving Social Change

Already gold's record prices are driving wide-ranging social change around the world. In the remotest parts of Africa, villagers scrambling for ever more valuable flecks of gold risk death at the hands of mine security and parents squeezing gold wealth from ore have inadvertently poisoned their own children in the process. In India, where gold has cultural significance, parents are crushed they can't buy their daughters as much gold jewelry as they wanted for their weddings.

The council declined to comment on the painful dividends.

When it worked to create the fund, one concern was that the exchange-traded product might contribute to a bubble. Burton and his investment team worried that too much success would shoot gold prices up too fast, resulting in a crash like the one that occurred in January 1980, he said. Back then the bubble burst in one day and took two decades to recover.

Pushing Every Button

Ultimately those engineering what would become SPDR Gold decided it wasn't their job to worry about it.

"Our primary mission was to find every button we could push to stimulate demand," Burton, 59, said in an interview in London. "We also knew that we had launched something that we could not control."

Their timing was impeccable. They opened investment in a reputed safe asset to potentially millions of new investors just before the financial crisis of 2007 and 2008 and the ensuing global economic slowdown. Until then, bullion was viewed by many as a fringe holding for the rich with Swiss bank vaults or gold bugs who hoarded the metal beside canned food to hedge against Apocalypse.

"They were very patient and they tapped a real deep need in the ordinary investor to be able to buy and sell gold like a stock," says Jeremy Siegel, a finance professor at the University of Pennsylvania's Wharton School in Philadelphia.

'Pivotal Moment'

The creation of the fund was a "pivotal moment," said Scott Malpass, chief investment officer for Notre Dame in South Bend, Indiana. It provided a vehicle for investors that made gold readily available and cheap and easy to trade, he said.

He managed about $5.5 billion, as of the end of fiscal year 2009, in endowments and other funds for the school.

A gold skeptic, he began buying into SPDR Gold after Lehman Brothers Holdings Inc.'s collapse in 2008, acquiring about $111 million by July 1, 2009. The school held about $65.8 million in the fund as of Sept. 30, according to SEC records.

While the World Gold Council was not first in the world to develop an exchange-traded product backed by gold, bringing it to the U.S. market was crucial, Burton and Thompson say.

The fund, now called SPDR Gold, started trading in 2004 and led the way for exchange-traded products backed by commodities in the U.S. Of the $1.4 trillion in exchange-traded products worldwide at the end of November, $171.7 billion were backed by or linked to commodities, according to BlackRock.

Atomic number 79 on the periodic table, gold has captivated humans for at least 6,000 years, since goldsmiths fashioned it into decorative objects and jewelry on the coast of the Black Sea in what is today Bulgaria.

Malleable Metal

A malleable metal, gold isn't really consumed. Virtually every ounce of gold that's ever been mined is still around: an estimated 165,000 metric tons. Peter Bernstein, the late economic historian, cited a calculation that all of the world's gold could be melted to fit into a single oil tanker in his 2000 best-selling history of the precious metal, The Power of Gold.

King Croesus first minted gold coins as money in the 6th century B.C. in what is now Turkey. By the 20th century, the U.S. and most nations had formally adopted a gold standard.