David Berman
RTGAM
Is there more behind the falling price of gold than the rising U.S. dollar?
Commodities of all sorts were down sharply on Friday after the U.S. Securities & Exchange Commission levelled charges against Goldman Sachs Group Inc., because investors scrambled out of riskier bets and into the arms of the U.S. dollar. Since gold and other commodities are priced in U.S. dollars, they fell.
However, Jon Ogg at 24/7 Wall Street has another interesting theory: The hedge fund company at the centre of the current Goldman Sachs controversy - the company that is alleged to have picked the securities that Goldman sold to other investors - is none other that Paulson & Co., headed by John Paulson.
This same company, after making $15-billion (U.S.) in 2007 by essentially betting against the U.S. housing market, more recently turned bullish on gold. According to Mr. Ogg, Paulson & Co. owns stakes in NovaGold Resources Inc., Kinross Gold Corp. , AngloGold Ashanti Ltd. and Gold Fields Ltd.
"The reason that Paulson being implicated in the gold trade is that Paulson & Co. opened up a hedge fund to bank on the long-term move that may come in the gold markets," Mr. Ogg said on his blog."If he is implicated too deeply in the SEC charges, again IF, then traders are betting that there will be an exodus from his funds and that Paulson will have to sell just to deal with redemptions and client losses."
In mid-afternoon trading, gold traded at $1136 an ounce, down $23. Meanwhile, the U.S. dollar index rose 0.5 per cent and the Canadian dollar fell 1.2 cents against the U.S. dollar, to 98.6 cents.
