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Goldman Sachs Recommendation to Sell Gold Based on Self-interest?

Commodities / Market Manipulation Dec 03, 2007 - 09:27 AM GMT

By: Gold_Investments

Commodities 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).

Gold Investments
63 Fitzwilliam Square
Dublin 2
Ireland
Ph +353 1 6325010
Fax  +353 1 6619664
Email info@gold.ie
Web www.gold.ie
Gold Investments
Tower 42, Level 7
25 Old Broad Street
London
EC2N 1HN
United Kingdom
Ph +44 (0) 207 0604653
Fax +44 (0) 207 8770708
Email info@goldinvestments.org
Web www.goldinvestments.org

Mission Statement
Gold and Silver Investments Limited hope to inform our clientele of important financial and economic developments and thus help our clientele and prospective clientele understand our rapidly changing global economy and the implications for their livelihoods and wealth.
We focus on the medium and long term global macroeconomic trends and how they pertain to the precious metal markets and our clienteles savings, investments and livelihoods. We emphasise prudence, safety and security as they are of paramount importance in the preservation of wealth.

Financial Regulation: Gold & Silver Investments Limited trading as Gold Investments is regulated by the Financial Regulator as a multi-agency intermediary. Our Financial Regulator Reference Number is 39656. Gold Investments is registered in the Companies Registration Office under Company number 377252 . Registered for VAT under number 6397252A . Codes of Conduct are imposed by the Financial Regulator and can be accessed at www.financialregulator.ie or from the Financial Regulator at PO Box 9138, College Green, Dublin 2, Ireland. Property, Commodities and Precious Metals are not regulated by the Financial Regulator

Disclaimer: The information in this document has been obtained from sources, which we believe to be reliable. We cannot guarantee its accuracy or completeness. It does not constitute a solicitation for the purchase or sale of any investment. Any person acting on the information contained in this document does so at their own risk. Recommendations in this document may not be suitable for all investors. Individual circumstances should be considered before a decision to invest is taken. Investors should note the following: The value of investments may fall or rise against investors' interests. Income levels from investments may fluctuate. Changes in exchange rates may have an adverse effect on the value of, or income from, investments denominated in foreign currencies. Past experience is not necessarily a guide to future performance.

All the opinions expressed herein are solely those of Gold & Silver Investments Limited and not those of the Perth Mint. They do not reflect the views of the Perth Mint and the Perth Mint accepts no legal liability or responsibility for any claims made or opinions expressed herein.

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Comments

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 ?


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