Gold News

Gold Tumbles as No.1 ETF Holder Named in Goldman Sachs Fraud Charges

Gold Prices fell at their fastest pace in 13 months late Friday in London, sinking 1.9% inside 3 hours as news of US government charges against Goldman Sachs spooked investors holding shares in the huge SPDR Gold Trust.

The single largest investor in the SPDR Gold Trust (ticker: GLD), the Paulson & Co. hedge fund, is named but not charged in the Washington suit.

Controlling some 8% of GLD's Gold ETF stock according to end-2009 filings – now worth $3.5 billion at current Gold Prices – manager John Paulson apparently turned $1 billion by betting against subprime mortgage-backed bonds packaged and sold to other investors by Goldman Sachs.

US regulator the Securities & Exchange Commission now claims that Goldman Sachs failed to tell those investors that Paulson & Co. was betting against them. Paulson was in fact involved in selecting which mortgage-backed securities Goldman's other clients would be sold, the SEC alleges.

"Paulson wasn't accused of wrongdoing," notes Bloomberg, although a mistaken headline at Barron's magazine online claimed that "Goldman, Paulson Defrauded Investors with CDOs, SEC Says" shortly after the story broke.


Silver Prices
also sank as New York opened for business, dropping over 3% to a two-week low of $17.76 an ounce.

According to the SEC's charges – which sue both Goldman Sachs and also Fabrice Tourre, a Goldman vice president currently in London – "Paulson paid Goldman Sachs & Co. approximately $15 million for structuring and marketing ABACUS 2007-AC1", a portfolio of subprime-mortgage-backed bonds.

"By October 24, 2007, 83% of the [residential mortgage bonds] in the ABACUS 2007-AC1 portfolio had been downgraded and 17% were on negative watch. By January 29, 2008, 99% of the portfolio had been downgraded.

"As a result, investors in the ABACUS 2007-AC1 CDO lost over $1 billion. Paulson's opposite CDS positions yielded a profit of approximately $1 billion for Paulson."

Goldman Sachs' stock fell almost 10% on the news, dragging the major US indices well over 1% down.

Elsewhere, the Euro meantime sank to a 1-week low vs. the Dollar. The Gold Price in Euros fell to a 9-session low of €27,000 per kilo.

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Adrian Ash is director of research at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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