Did John Paulson’s Role With Goldman Sachs (NYSE: GS) Create An Artificial Bull Market In The SPDR Gold ETF (NYSE: GLD)?
“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 (NYSE: GS) spooked investors holding shares in the huge SPDR Gold Trust (NYSE: GLD). The single largest investor in the SPDR Gold Trust (NYSE: GLD), the Paulson & Co. hedge fund, is named but not charged in the Washington suit,” Adrian Ash Reports From Bullion Vault.
Ash goes on to say, “Controlling some 8% of GLD’s Gold ETF (NYSE: GLD) 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 (NYSE: GS). 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.”
“According to the SEC’s charges – which sue both Goldman Sachs (NYSE: GS) 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,” Ash Reports.
“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.”
“Revelations of the hedge fund’s involvement in the dispute between Goldman Sachs and the SEC raise questions about a factor that’s helped drive gold to record-high prices above $1,200 an ounce–Paulson’s high-profile bets,” Matt Whittaker Reports From The WSJ.
“The bull market might be a false bull market in gold,” said Keith Springer, president of Capital Financial Advisory Services in Sacramento, Calif. A Paulson spokesman wasn’t immediately available for comment. In a statement, the fund said: “As the SEC said at its press conference, Paulson is not the subject of this complaint, made no misrepresentations and is not the subject of any charges.” “The SPDR ETF (NYSE: GLD) buys gold off the market to back shares that are designed to track the price of the commodity. When holders sell their shares, gold comes back on to the market,” Whittaker Reports.
Investors have turned to gold ETFs since the economy has been in uncertain times. They offer a great way to protect you against risk in your portfolio during uncertain times. We have put together some other ETF options for your viewing below:
The investment ETF (NYSE: GLD) seeks to replicate the performance, net of expenses, of the price of gold bullion. The trust holds gold, and is expected to issue baskets in exchange for deposits of gold, and to distribute gold in connection with redemption of baskets. The gold held by the trust will only be sold on an as-needed basis to pay trust expenses, in the event the trust terminates and liquidates its assets, or as otherwise required by law or regulation.
The investment ETF (NYSE: GDX) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the AMEX Gold Miners index. The fund generally normally invests at least 80% of its total assets in common stocks and American depositary receipts (ADRs) of companies involved in the gold mining industry. The fund is nondiversified.
The Funds ETF (NYSE: GDXJ) investment objective is to replicate as closely as possible, before fees and expenses, the price and yield performance of the Market Vectors Junior Gold Miners Index (the “Junior Gold Miners Index”). For a further description of the Junior Gold Miners Index, see “Junior Gold Miners Index.”
The objective of ETF (NYSE: SGOL) the newly listed shares is to reflect the performance of the price of Gold bullion, less the Trust’s operating expenses. The Trust is open ended and is designed for investors who want a cost-effective(1) and convenient(2) way to invest in Gold as well as diversify their Gold holdings.
The investment ETF (NYSE: UGL) will seek to replicate, net of expenses, twice the performance of gold bullion as measured by the U.S. Dollar p.m. fixing price for delivery in London. The fund normally invests assets in financial instruments with economic characteristics twice the return of the index. It may employ leveraged investment techniques in seeking its investment objective.
The investment ETF (NYSE: DGL) seeks to track the price and yield performance, before fees and expenses, of the Deutsche Bank Liquid Commodity Index – Optimum Yield Gold Excess Return. The index is a rules-based index composed of futures contracts on gold and is intended to reflect the performance of gold.
The investment ETF (NYSE: DGP) seeks to replicate, net of expenses, twice the daily performance of the Deutsche Bank Liquid Commodity index – Optimum Yield Gold Excess Return. The index is intended to reflect changes in the market value of certain gold futures contracts and is comprised of a single unfunded gold futures contract.
The objective ETF (NYSE: IAU) of the trust is for the value of its shares to reflect, at any given time, the price of gold owned by the trust at that time, less the trust’s expenses and liabilities. The trust is not actively managed. It receives gold deposited with it in exchange for the creation of baskets of iShares, sells gold as necessary to cover the trust’s liabilities, and delivers gold in exchange for baskets of iShares surrendered to it for redemption. The trust is not an investment company registered under the Investment Company Act of 1940 or a commodity pool for purposes of the Commodity Exchange Act.
The investment ETF (NYSE: DZZ) seeks to replicate, net of expenses, twice the inverse of the daily performance of the Deutsche Bank Liquid Commodity index – Optimum Yield Gold Excess Return. The index is intended to reflect changes in the market value of certain gold futures contracts and is comprised of a single unfunded gold futures contract.
The investment ETF (NYSE: GLL) will seek to replicate, net of expenses, twice the inverse daily performance of gold bullion as measured by the U.S. Dollar p.m. fixing price for delivery in London. The fund normally invests assets in financial instruments with economic characteristics inverse to the index. It may employ leveraged investment techniques in seeking its investment objective.