Goldman Sachs Recommendation to Sell Gold Based on Self-interest?
Commodities / Market Manipulation Dec 03, 2007 - 09:27 AM GMTBy: Gold_Investments
Gold
Gold was down $12.10 to $783.10 per ounce in New York on Friday and silver was down 25 cents to $13.98 per ounce. Gold showed strength in early trading in Asia and rallied to $792 but in early European trading it has given up these gains and has traded back down to $783.50 per ounce at 1200 GMT. Gold is trading at £379 GBP (down from £385) and €534 EUR (down from €540).
Gold was down some 5.5% last week on options expiry, year end profit taking and tentative dollar strength and oil weakness. While there may be some follow through selling this week and further short term weakness and consolidation - the medium and long term outlook remains extremely bullish with very strong fundamentals underpinning the gold market. Gold is up 23% year to date and given this and the surge in the price in the last quarter (from $650 in late August) profit taking and consolidation is to be expected.
Confirmation that gold is now in a bull market in all currencies including the yen and the Swiss franc was seen last week when the gold price in Australian dollars hit a new all-time record high, closing the week at more than $940 per ounce (AUD). This shows that gold's strength is not solely a function of U.S. dollar weakness rather it is a function of weakening paper currencies in general against the universal finite currency that is gold. The Aussie dollar is seen as a 'commodity currency' (currencies of countries which depend heavily on the export of certain raw materials and natural resources for income, e.g. Australian dollar, Canadian dollar, New Zealand dollar, and the South African rand) and has strengthened considerably against most currencies internationally in recent years.
Goldman Sachs Group Inc. is recommending that investors get out of gold and lock in their gains just two months after it suggested they buy. Goldman Sachs recommends in its top 10 trades list for 2008 that investors short gold next year. However, there appears to be dissent in the Goldman camp as only a few days ago another Goldman analyst, Oscar Cabrera, said that the average price of gold will increase to $800 an ounce in 2008, up from $687 in 2007.
This could be a case of advising clientele to do one thing while doing the opposite as reported in the New York Times over the weekend. Goldman sold millions in junk bonds and asset backed securities in recent years while simultaneously shorting the market thus profiting massively from a decline in those same securities. (
http://www.nytimes.com/2007/12 /02/business/02every.html?_r=1 &pagewanted=all&oref=slogin ). Ben Stein writing in the NY Times writes: "To my old eyes, the recent unhappiness about mortgages and Goldman's connection with them are not examples of sterling conduct. It is bad enough to have been selling this stuff. It is far worse when the sellers were, in effect, simultaneously shorting the stuff they were selling, or making similar bets.
Doesn't this bear some slight resemblance to Merrill selling tech stocks during the bubble while its analyst Henry Blodget was reportedly telling his friends what garbage they were? How different would it be from selling short the junky stock that your firm is underwriting? And if a top economist at Goldman Sachs was saying housing was in trouble, why did Goldman continue to underwrite junk mortgage issues into the market? Here is a query, as we used to say in law school: Should Henry M. Paulson Jr., who formerly ran a firm that engaged in this kind of conduct, be serving as Treasury secretary? Should there not be some inquiry into what the invisible government of Goldman (and the rest of Wall Street) did to create this disaster, which has caught up with some Wall Street firms but not the nimble Goldman? When the Depression got under way, the government created the Temporary National Economic Committee to study just what had happened on the Street to get the tragedy going. Maybe it's time for an investigation of just what Wall Street and Goldman did to make money as they pumped this mortgage mess into the economic system, and sometimes were seemingly on both sides of the deal."
Also of interest is the fact that Goldman has been closing out its very large short position in the Tokyo gold exchange (Tocom) in recent weeks. Indeed their short position is now as low as it has been in many months. Reducing shorts while at the same time advising others to go short is somewhat counter intuitive. Given the deteriorating macroeconomic picture, advising clientele to go short gold is highly unusual and will likely be seen as a questionable recommendation in the coming months.
Silver
Silver is trading at $13.90/91 at 1200 GMT.
PGMs
Platinum was trading at $1446/1450 (1200 GMT).
Spot palladium was trading at $344/350 an ounce (1200 GMT).
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Comments
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Jen
03 Dec 07, 17:33 |
Gold Manipulated?
Thats very interesting, so your implying that Goldman Sachs are trying to manipulate the gold price for their own investment portfolios ? |
