Gold falls on concern Obama bank plan may erode commodity trade
Monday, 25 January 2010
SEATTLE, Jan 24 (Bloomberg): Gold futures dropped to a one-month low on speculation that President Barack Obama's plan to restrict US bank trading will reduce investment demand for commodities, including precious metals.
The proposal to limit risk-taking by banks, preventing investments in hedge funds and private equity pools, may cost Goldman Sachs Group Inc $4.67 billion in revenue next year, JP Morgan Chase & Co said in a report. Investors poured $60 billion into raw materials in 2009, according to a Barclays Capital survey, fueling the biggest commodity rally since 1979.
"President Obama's restrictions on bank trading could undermine the gold market, if it prevents investment from moving into risk markets." said Tom Pawlicki, an MF Global Inc analyst in Chicago. "Gold has correlated well with risk markets in the past year, and yesterday's events sent investment into Treasuries rather than gold and stocks."
Gold futures for February delivery dropped $13.50, or 1.2 per cent, to $1,089.70 an ounce on the New York Mercantile Exchange's Comex unit, dropping 3.6 per cent this week.
Earlier, the most-active contract touched $1,081.90, the lowest price since December 23. Gold fell for the third straight day, the longest slump in six weeks.
Last year, investment in the SPDR Gold Trust, the biggest exchange-traded fund backed by the metal, surged 45 per cent to as much as 1,134 metric tonnes. The total value of the fund grew 85 per cent to $40 billion. Gold futures jumped 24 per cent in 2009, the ninth straight annual gain, touching a record of $1,227.50 last month in New York.
"You're going to see a sharp reduction in trading volume, higher volatility and probably lower prices" should Obama's plan pass Congress, said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois. "The banks were behind a lot of the fever. It wasn't the small guy on the street taking commodities to extreme prices."
UBS AG, based in Zurich, and JPMorgan were among the top 10 holders of the SPDR ETF at the end of the third quarter, according to corporate filings. New York-based JPMorgan is the second-biggest US bank.
The proposal to limit risk-taking by banks, preventing investments in hedge funds and private equity pools, may cost Goldman Sachs Group Inc $4.67 billion in revenue next year, JP Morgan Chase & Co said in a report. Investors poured $60 billion into raw materials in 2009, according to a Barclays Capital survey, fueling the biggest commodity rally since 1979.
"President Obama's restrictions on bank trading could undermine the gold market, if it prevents investment from moving into risk markets." said Tom Pawlicki, an MF Global Inc analyst in Chicago. "Gold has correlated well with risk markets in the past year, and yesterday's events sent investment into Treasuries rather than gold and stocks."
Gold futures for February delivery dropped $13.50, or 1.2 per cent, to $1,089.70 an ounce on the New York Mercantile Exchange's Comex unit, dropping 3.6 per cent this week.
Earlier, the most-active contract touched $1,081.90, the lowest price since December 23. Gold fell for the third straight day, the longest slump in six weeks.
Last year, investment in the SPDR Gold Trust, the biggest exchange-traded fund backed by the metal, surged 45 per cent to as much as 1,134 metric tonnes. The total value of the fund grew 85 per cent to $40 billion. Gold futures jumped 24 per cent in 2009, the ninth straight annual gain, touching a record of $1,227.50 last month in New York.
"You're going to see a sharp reduction in trading volume, higher volatility and probably lower prices" should Obama's plan pass Congress, said Leonard Kaplan, the president of Prospector Asset Management in Evanston, Illinois. "The banks were behind a lot of the fever. It wasn't the small guy on the street taking commodities to extreme prices."
UBS AG, based in Zurich, and JPMorgan were among the top 10 holders of the SPDR ETF at the end of the third quarter, according to corporate filings. New York-based JPMorgan is the second-biggest US bank.