Thursday, July 15, 2010

"Goldman Sachs pushes gold hedging, predicting falling gold price beyond 2011" (GLD; GS)

UPDATE: "Goldman's FX Team Validates Cynical Critics, Capitulates On EURUSD Recommendation ONCE AGAIN" (EUR/USD)"
Original post:
Our guiding principle when Goldman Sachs talks commodities:
Mother: .....And remember, the Lord loves a working man.
Navin: ........Lord loves a working man.
Father: ......And son, don't never, ever trust whitey.
-The Jerk (1979)
Goldman's commodity trading division, J.Aron, is the crown jewel of the whole behemoth.
They will do anything...ANYTHING to protect it and further its purposes.
Current GS CEO Lloyd Blankfein came up on the trading side, J. Aron:
"When Blankfein asked about his title, a boss at J. Aron said, 'You can call yourself contessa if you want.'"
-Fortune, January, 2006
(from a small collection of GS stories, "Goldman Sachs CEO: "We Didn't Realize How Bad Things Would Get" (GS)"

Here's the headline story, from MineWeb:

Goldman Sachs has raised its medium term gold price forecast to $1,355, but reckons prices will fall from 2011 and recommends producers sell gold forward.
Plus ça change.  Goldman Sachs is suggesting that mining companies sell gold forward again.  The logic behind this is that although the bank reckons the gold price will increase to $1,355 an ounce over the next 12 months - a tiny increase from its earlier prediction of $1,335 - beyond that it is looking for prices to stabilise and fall as the U.S. Fed tightens monetary policy and the recession is seen to be ending.

Of course the big gold banks, of which Goldman is probably the most successful, can do very well out of its clients hedging their gold forward whatever the fortunes of its clients in so doing.  It was notably the bank which reputedly advised Ashanti Goldfields to sell its gold forward at gold's low point back at the end of the 1990s - a policy which brought the gold miner to its knees leading to its takeover by AngloGold - another Goldman client.  Indeed commentators have suggested that Goldman made profits on every angle of the Ashanti hedging debacle, and on the sale of one of its clients to another.

Goldman would probably counter that its primary responsibility was to its shareholders - perhaps even more so than its clients - and that the sudden turn-around in the gold price which caused Ashanti's effective bankruptcy, was completely unforeseen, but the whole episode left a bitter taste that lingers to this day, particularly in Ghana where Ashanti was seen as the country's major gold player on the world scene....MORE