BLBG: Gold Drops to Two-Week Low as Goldman Case May Spur Regulation
By Claudia Carpenter and Kim Kyoungwha
April 19 (Bloomberg) -- Gold dropped to the lowest price in almost two weeks in London on speculation that commodities demand will be curbed by regulations arising from the lawsuit against Goldman Sachs Group Inc. for alleged fraud.
Goldman Sachs faces a U.K. regulatory probe and scrutiny from the German government after the U.S. Securities and Exchange Commission lawsuit on April 16. Goldman Sachs said the suit was “unfounded in law and fact.” Oil, platinum and the six main industrial metals traded on the London Metal Exchange also declined.
“We may see an increase in calls for trading restrictions by large-scale speculators,” said James Moore, an analyst at TheBullionDesk.com in London. Goldman traders are “active members of the gold market.”
Bullion for immediate delivery fell $9.20, or 0.8 percent, to $1,128.20 an ounce at 12:02 p.m. local time. The metal touched $1,124, the lowest level since April 6. Futures for June delivery declined 0.7 percent to $1,128.40 on the Comex in New York.
Gold slid to $1,127.50 an ounce in the morning “fixing” in London, used by some mining companies to sell production, from $1,151.50 at the afternoon fixing on April 16. Deutsche Bank AG, HSBC Holdings Ltd., Bank of Nova Scotia, Societe Generale SA and Barclays Plc carry out the twice-daily fixings by telephone.
‘Bad News’
“Clearly any return of risk aversion that this prompts is, as we have seen, going to be bad news for the gold price, at least in the short term,” Philip Klapwijk, executive chairman of London-based research company GFMS Ltd., said of the lawsuit by e-mail today.
Gold declined 1.9 percent on April 16 as the legal action was announced. It was “one of the worst days we’ve suffered in our accounts in a very, very long while,” U.S. economist and trader Dennis Gartman said in his daily Gartman Letter today. “Our positions in gold, in non-U.S. dollars and in equities, blew up in our face in a matter of moments.”
Holdings in European and Australian exchange-traded products rose to 7.62 million ounces that day from 7.6 million on April 15, according to figures on provider ETF Securities Ltd.’s Web site. Platinum assets increased to 392,150.5 ounces from 388,369 ounces.
SPDR Holdings
Assets in the SPDR Gold Trust, the biggest bullion ETF, were unchanged on April 16 at 1,141 metric tons, according to figures on the company’s Web site. Hedge-fund operator Paulson & Co., mentioned though not charged with wrongdoing in the SEC case against Goldman, owned 8.4 percent of the SPDR fund as of Dec. 31, according to Bloomberg data.
Prices also fell on speculation that Paulson will have to reduce its holdings in gold, Commerzbank AG said in a report today.
Any price drop would give investors, especially central banks, a buying opportunity, said Aaron Smith, managing director of Superfund Financial Pte. Central banks in nations from India to Mexico bought gold last year, helping to reduce total net sales to the least since 1989, according to GFMS.
Metal supplies in Europe are probably sufficient to meet demand even as air-freight disruptions stretch to a fifth day, TheBullionDesk.com’s Moore said. Parts of European airspace have been closed for days because of concern that ash from an Icelandic volcanic eruption might damage planes.
Flight Restrictions
Gold and silver coin shipments to Europe by South African Mint Co. are unaffected by flight restrictions “at this stage,” according to Tom Davel, general manager in Pretoria.
The London Bullion Market Association, representing the wholesale gold and silver market in the U.K. capital, said its members aren’t struggling to secure supplies after disruptions to air freight.
“There is a lot of gold in London and a very active lending market,” said Stewart Murray, the LBMA’s chief executive officer. “If anyone needed to borrow gold because a shipment was delayed, I can’t imagine it would be a problem.”
Most gold is transported by plane, while silver tends to be carried on ships, he said.
“An extension of the air-travel restriction into the latter half of the week, with physical hubs dependent on air freight from London and Zurich and in tandem with local metal stocks running thin, could lead to local prices trading sharply into premium territory,” Edel Tully, a precious-metals strategist at UBS Ltd. in London, said in a report. “While not yet in the disruptive zone, we’ll be closely monitoring premiums over the coming days.”
Silver declined as much as 1.4 percent to $17.495 an ounce, the lowest since April 1, and was last at $17.5075. Platinum fell 0.8 percent to $1,679 an ounce, the lowest since April 5. Palladium dropped 2 percent to $519.50 an ounce, the lowest since April 13.
To contact the reporters on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net; Kyoungwha Kim in Singapore at kkim19@bloomberg.net
