A fraud suit by U.S. regulators against Goldman Sachs Group Inc. is unlikely to send hedge funds scrambling to reduce gold holdings, according to Superfund Financial Singapore Pte.
Any retreat in prices will present investors, especially central banks, with a buying opportunity, Aaron Smith, managing director of Superfund, said in an interview today. Gold for immediate delivery was little changed at $1,136.57 an ounce at 11:57 a.m. in Singapore after slumping by the most in more than two months on April 16.
“I wouldn’t expect hedge funds to unwind their positions,” Smith said. “Even if they do, I think central banks, especially in the East, whether it’s India or China or any central bank that is smart, will use it as an opportunity to acquire gold at a cheaper level.”
Goldman faces a regulatory probe in Britain and scrutiny from the German government after the U.S. Securities and Exchange Commission sued the firm for fraud tied to collateralized debt obligations. The firm failed to disclose to investors that hedge fund Paulson & Co. was betting against the instruments and influenced the selections in the portfolio, the SEC said. Paulson wasn’t accused of wrongdoing.
As of Dec. 31, Paulson was the largest holder in the SPDR Gold Trust, the biggest exchange-traded fund back by the metal, and Goldman was the 11th biggest. Both are based in New York. Paulson is also the top investor in AngloGold Ashanti Ltd., Africa’s largest producer of bullion.
Hedge-fund managers and other large speculators increased their net-long positions in New York gold futures in the week ended April 13, according to U.S. Commodity Futures Trading Commission data.
Speculative long positions, or bets prices will rise, outnumbered short positions by 220,742 contracts on the Comex division of the New York Mercantile Exchange, the Washington- based commission said in its Commitments of Traders report. Net- long positions rose by 17,296 contracts, or 9 percent, from a week earlier.
“In the short term, there’s a possibility of a pullback and we would recommend to any investor that’s a good opportunity” to enter the market, Smith said. “In the long run, the hard assets will have sustainable value and sustainable purchasing power.”
Gold rallied 24 percent last year as central banks and governments maintained low interest rates and spent trillions of dollars to stimulate economies, sending the dollar 4.2 percent lower against six major currencies. Bullion has gained 3.6 percent this year.
“If the upward trend in equity markets continues and interest rates continue to stay low, we won’t certainly see a large pullback in commodity markets,” Smith said.
Central banks in Russia, China, India, Sri Lanka and Mauritius have all increased their gold reserves. China has expanded reserves by 76 percent to 1,054 metric tons since 2003, the central bank said last year. India bought 200 tons from the International Monetary Fund last year as gold prices soared and the dollar weakened.
To contact the reporter on this story: Kyoungwha Kim in Singapore at Kkim19@bloomberg.net