Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold, Silver & HUI Stocks Big Pictures - 28th Sep 20
It’s Time to Dump Argentina’s Peso - 28th Sep 20
Gold Stocks Seasonal Plunge - 28th Sep 20
Why Did Precious Metals Get Clobbered Last Week? - 28th Sep 20
Is The Stock Market Dow Transportation Index Setting up a Topping Pattern? - 28th Sep 20
Gold Price Setting Up Just Like Before COVID-19 Breakdown – Get Ready! - 27th Sep 20
UK Coronavirus 2nd Wave SuperMarkets Panic Buying 2.0 Toilet Paper , Hand Sanitisers, Wipes... - 27th Sep 20
Gold, Dollar and Rates: A Correlated Story - 27th Sep 20
WARNING RTX 3080 AIB FLAWED Card's, Cheap Capacitor Arrays Prone to Failing Under Load! - 27th Sep 20
Boris Johnson Hits Coronavirus Panic Button Again, UK Accelerting Covid-19 Second Wave - 25th Sep 20
Precious Metals Trading Range Doing It’s Job to Confound Bulls and Bears Alike - 25th Sep 20
Gold and Silver Are Still Locked and Loaded… Don't be Out of Ammo - 25th Sep 20
Throwing the golden baby out with the covid bath water - Gold Wins - 25th Sep 20
A Look at the Perilous Psychology of Financial Market Bubbles - 25th Sep 20
Corona Strikes Back In Europe. Will It Boost Gold? - 25th Sep 20
How to Boost the Value of Your Home - 25th Sep 20
Key Time For Stock Markets: Bears Step Up or V-Shaped Bounce - 24th Sep 20
Five ways to recover the day after a good workout - 24th Sep 20
Global Stock Markets Break Hard To The Downside – Watch Support Levels - 23rd Sep 20
Beware of These Faulty “Inflation Protected” Investments - 23rd Sep 20
What’s Behind Dollar USDX Breakout? - 23rd Sep 20
Still More Room To Stock Market Downside In The Coming Weeks - 23rd Sep 20
Platinum And Palladium Set To Surge As Gold Breaks Higher - 23rd Sep 20
Key Gold Ratios to Other Markets - 23rd Sep 20
Watch Before Upgrading / Buying RTX 3000, RDNA2 - CPU vs GPU Bottlenecks - 23rd Sep 20
Online Elliott Wave Markets Trading Course Worth $129 for FREE! - 22nd Sep 20
Gold Price Overboughtness Risk - 22nd Sep 20
Central Banking Cartel Promises ZIRP Until at Least 2023 - 22nd Sep 20
Stock Market Correction Approaching Initial Objective - 22nd Sep 20
Silver Bulls Will Be Handsomely Rewarded - 21st Sep 20
Fed Will Not Hike Rates For Years. Gold Should Like It - 21st Sep 20
US Financial Market Forecasts and Elliott Wave Analysis Resources - 21st Sep 20
How to Avoid Currency Exchange Risk during COVID - 21st Sep 20
Crude Oil – A Slight Move Higher Has Not Reversed The Bearish Trend - 20th Sep 20
Do This Instead Of Trying To Find The “Next Amazon” - 20th Sep 20
5 Significant Benefits of the MT4 Trading Platform for Forex Traders - 20th Sep 20
A Warning of Economic Collapse - 20th Sep 20
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Dot.com Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Goldman, Gold, And U.S. Dollar's Influence on Precious Metals

Commodities / Gold and Silver 2010 Apr 24, 2010 - 01:13 AM GMT

By: Przemyslaw_Radomski

Commodities

Best Financial Markets Analysis ArticleWhen gold declined last Friday we were not caught by surprise and neither were our Subscribers. Based on our technical analysis, we gave you a heads up two weeks ago when we said that gold was ready for a decline before resuming its upward climb. But sometimes news can rattle the market, which is what happened Friday when gold hit an air pocket and dove $25 in a few minutes to move very close (or slightly below) the levels mentioned in our Friday update.


While it is always the sell order (or rather a large amount of them) that causes a dramatic move, and one should not automatically assume that one single event is responsible for it (without giving it a second thought), in this case it seems that the immediate cause for the decline was news of the Securities and Exchange Commission’s (S.E.C.) civil fraud charges against Goldman Sachs.

You might be scratching your head wondering why such an event would affect the price of gold? Intuitively, one would reason that since gold is a hedge against financial-sector risk, gold would shoot up in reaction to such news instead of diving down. In times of uncertainty, investors turn to gold as a hedge against inflation and unforeseen crisis, gold being one of the very few asset classes that is not someone else's liability. But Friday, investors lost their risk appetite and dumped all commodities in favor of the U.S. dollar.

The full story of what happened with Goldman Sachs is complex and the media hasn’t done a great job explaining it. In a nutshell, the S.E.C. is charging that Goldman created and marketed securities based on a group of subprime mortgages that were deliberately designed to fail.

 Why would they want to do something like that?

Obviously somebody was going to make a lot of money from it. That someone - as it is expected - was the super-savvy hedge fund firm of Paulson & Co, the world’s third largest hedge fund. According to the S.E.C., Goldman failed to disclose to investors the role played by Paulson & Co in the construction and design of that particular security. Paulson & Co helped choose securities for this investment and then wagered (successfully) that it would fail. In other words, Paulson & Co, worked with Goldman to pick the assets that went into the security, allegedly choosing the riskiest. Then, Goldman sold these securities to its clients, who readily bought because of their triple-A rating. (Someone should look into how they got this triple-A rating.) Mr. Paulson then placed bets that the security would lose value.

We took a look at the Goldman Sachs website, specifically at a section called their “business principles.” There were 14 listed. Let’s look at the first and the last. The first says: “Our clients' interests always come first.” (I guess they meant the BIG client, like Paulson& Co) The last principle says: “Integrity and honesty are at the heart of our business.” (No need to comment on that one.)

Paulson & Co said its role in helping to design a mortgage-linked deal sold by Goldman Sachs Group Inc. was “appropriate and conducted in good faith,” according to a letter sent to investors.

If you’re still wondering what all this has to do with the price of gold, we’re now getting to that part. Obviously anyone sharp enough to see the coming of the subprime fiasco and intelligent enough to make billions of dollars from it is one savvy investor. Further proof for us at Sunshine Profits that John Paulson is one smart dude is the fact that Paulson’s firm is one of the world’s largest investors in gold. His holdings of the SPDR Gold Trust (GLD), valued at $3.6 billion, make his firm the largest holder of that ETF -- representing 15% of his portfolio. Among his other top ten disclosed positions is the AngloGold Ashanti LTD (NYSE:AU) gold mining stock. His ownership of that stock totals $1.7 billion and represents around 7% of his holdings.
 
Even though Paulson & Co. was not charged by the S.E.C., the sheer mention of the firm in connection with the suit against Goldman was taken to be negative news for gold.

The thinking might have been that investors in Paulson's hedge fund may rush to redeem their shares in the fund, thereby forcing it to sell some of its gold holdings. That argument does not make sense. First of all, most hedge funds require at least a 30-day notice to cash out. Even if the deal Paulson made wasn’t exactly ethical, it still made his investors a spectacular bundle of money and the S.E.C. did not press any charges against him. So where is the risk for his investors?
    
Even if, for the sake of argument, many investors would rush to the exit doors to redeem their shares in Paulson's hedge fund, and as a result the fund would have to sell some of its gold holdings, how would that affect the precious metals market?
 
Writing this week for Marketwatch, Mark Hulbert crunched some figures.

“For argument's sake, let's assume that Paulson's gold holdings, both physical gold as well as shares of gold mining companies, represent a total of about 30% of his overall investments and are worth around $10 billion. Let's further assume that 10% of the investors in Paulson's fund suddenly get cold feet and ask for their money back.
 
Given my assumptions, that would lead to the sale of $1 billion of gold and gold shares -- or 0.37% of the total worldwide market cap of gold mining companies and gold owned by ETFs. Not exactly good news, but not particularly momentous, either -- especially since hedge fund investors typically can't get their money back immediately but have to wait a while after indicating their intent to redeem.”

Even though it seems that the Goldman-linked SEC case caused the price of gold to dive last Friday, we believe it was only a catalyst to the technical correction that we predicted was coming in any case. We wrote in the last two Premium Updates that gold, which rallied to a four-month high of $1,170.70 on April 12, was poised for a technical correction. So, it seems to us that the Goldman news most likely just triggered an exit opportunity for short-term traders to lock in profits. If we look at the large picture, a blip like the Goldman Sachs story won't make a difference in the long-term inevitability of the gold bull market.

We found it interesting that upon hearing the news about Goldman Sachs, nervous investors would dump gold for dollars. We have written in previous Premium Updates about the mountain of debt accrued by the U.S. government and what it will mean for the long-term value of the U.S. dollar.

Speaking of the U.S. dollar, let’s take a look at the current situation in the USD Index (charts courtesy by http://stockcharts.com.)

In our previous report we wrote the following:

There has been only a very small reaction to the USD weakness.  Gold has recently been consolidating and this means that these may move a bit lower before the bottom is in. This holds true for silver and other equities as well.
 
We felt that the USD would move slightly higher but that its weakness would cause relatively little downward pressure on the precious metals sector.  This is exactly what happened over the past seven days as the USD approached its March highs but gold did not respond by moving close to its recent lows.  The same held true for silver.  So, although the recent decline might have appeared huge on a day-to-day basis, taking a broader perspective reveals that on a relative basis very little downward movement occurred in the PM markets. 

This is a very positive sign for PM’s as the USD is one of the key drivers for PM prices and the rally seen this week had little negative effect on PM’s.  We are bullish at present although we do not expect immediate upward movement in gold, silver and mining stocks. 

The USD is approaching a resistance level at the 50% Fibonacci retracement of the 2009 decline as well as a previous stop.  This may hold this rally in check.  However, the PM markets remain strong.  Even if we do see another increase (which we don't expect at this point), say to the 83 level, though unlikely, we do not expect a severe decline in PM prices. The USD will eventually, in our view, move lower.  This will in turn cause the PM prices to rise strongly as there will be no downward pressure from the USD when its decline begins.  Whether this happens in one week or two is unclear at this time but we believe that the decline in the USD is in the cards sooner or later.

Summing up, based on the analysis of the U.S. Dollar Index, we remain bullish on gold, silver, and mining stocks in the medium term.

The USD rally is likely to slow and soon come to an end.  Gold, silver, and mining stocks, having shown strength during the recent USD rise, are poised to surge upward once the current USD rally ends.  Should the USD rally continue in the coming week, expect continued minimal declines in the PM sector as its strength continues to hold prices in patterns similar to recent weeks.

To make sure that you are notified once the new features are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, I urge you to sign up for my free e-mail list. Sign up today and you'll also get free, 7-day access to the Premium Sections on my website, including valuable tools and charts dedicated to serious PM Investors and Speculators. It's free and you may unsubscribe at any time.

Thank you for reading. Have a great and profitable week!

P. Radomski
Editor
Sunshine Profits

    Interested in increasing your profits in the PM sector? Want to know which stocks to buy? Would you like to improve your risk/reward ratio?

    Sunshine Profits provides professional support for precious metals Investors and Traders.

    Apart from weekly Premium Updates and quick Market Alerts, members of the Sunshine Profits’ Premium Service gain access to Charts, Tools and Key Principles sections. Click the following link to find out how many benefits this means to you. Naturally, you may browse the sample version and easily sing-up for a free trial to see if the Premium Service meets your expectations.

    All essays, research and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

    By reading Mr. Radomski's essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Przemyslaw Radomski Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules