Investors increased their net-long positions on gold futures at the end of last week, after news about the SEC’s fraud suit against Goldman Sachs emerged — driving stock prices down. With gold prices typically rising in light of financial crises, some analysts expect gold prices to gain as the Goldman situation unfolds. See the following article from Commodity Online for more on this.
At a time when the paper gold scam was about to rock the bullion boat, like a godsend came the Goldman Sachs crisis which is all set to ensure that gold prices will gain out of it.
After the market recovers from the initial shock, which has hit even equity markets because of the huge reach Goldman Sachs has in the global market, gold is all set to soar riding this crisis also. Gold traditionally loves to cash in on crises. When the world was under the grip of recession, gold made the maximum profit. Then came various problems which dogged the equity market across world.
But, gold kept on soaring in the bullion market. Now, the Goldman Sachs crisis came just after the Greek Tragedy which had helped gold gain in the recent past.
However, when Goldman Sachs, the largest US commodity broker, was charged with defrauding investors with a financial product tied to subprime mortgages by the Security Exchange Commission (SEC), the yellow metal felt the impact instantly and the bullion prices crashed within hours of the news.
But, gold is one metal which thrives in crisis. So, according to experts, gold will bounce back soon as this crisis will force central banks of several countries, including China and India, to buy gold using the opportunity to get the metal in a reduced price.
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Goldman faces a regulatory probe in Britain and scrutiny from the German government after the US Securities and Exchange Commission sued the firm for fraud tied to collateralized debt obligations. The firm failed to disclose to investors that hedge fund Paulson & Co. was betting against the instruments and influenced the selections in the portfolio, the SEC said. Paulson wasn’t accused of wrongdoing.
Paulson was the largest holder in the SPDR Gold Trust, the biggest exchange-traded fund back by the metal, and Goldman was the 11th biggest. Both are based in New York. Paulson is also the top investor in AngloGold Ashanti Ltd., Africa’s largest producer of bullion.
Hedge-fund managers and other large speculators increased their net-long positions in New York gold futures in the week ended April 13.
Gold rallied 24 percent last year as central banks and governments maintained low interest rates and spent trillions of dollars to stimulate economies, sending the dollar 4.2% lower against six major currencies. Bullion has gained only 3.6 percent this year.
Central banks in Russia, China, India, Sri Lanka and Mauritius have all increased their gold reserves. China has expanded reserves by 76% to 1,054 tonnes since 2003.
India bought 200 tons from the International Monetary Fund last year as gold prices soared and the dollar weakened.
Paulson & Co. is the largest institutional holder of the SPDR Gold Trust (GLD) with about 8.4% stake, whereas Goldman Sachs also holds the 11th largest stake at 0.6% in the fund. SPDR is world’s biggest exchange- traded fund backed by physical bullion with a record gold holding of 1,141.041 tons as of April 15.
Paulson’s high-profile bets have partly helped drive gold to record-high prices above $1,200 an ounce. Although no charges were brought against the hedge fund, the double whammy news weighed on gold, and prompted some concerns in the commodity markets, since Goldman Sachs is a major player with massive positions in all commodities including gold, silver and crude oil.
And, when there is a crisis, gold will always drive momentum from it and rise. That has been the tradition till now. It seems, if the uncertainty and the law suit create some panic in the market, gold will surely benefit from the Goldman crisis.
This article has been republished from Commodity Online. You can also view this article at Commodity Online, a commodity news and analysis site.