Capital Gold Group Report: Short Covering and Momentum Funds Push Gold Higher

30 April 2010, 10:54 a.m. EDT
By Daniela Cambone
Of Kitco News

Montreal (Kitco News) — Gold hit a 2010 high above $1,175 an ounce on Friday, mostly fuelled by short covering and momentum funds said George Gero, vice president of global futures at RBC Capital Markets.

Currently trading in a range of $1,160-$1,175, the yellow metal is looking at hitting spot prices of $1,180 and $1,200 an ounce said Gero. Gold spot prices seemed to be on track to move back towards their December high, a record peak of $1,226.10 an ounce.

Driving the gold price are momentum funds that like higher volume, higher open interest and higher moving averages along with options traders, said Gero. “Funds are buying this morning as technicals are strong for the precious metals,” he said.

He added however, that gold will not hit these prices today.

Spot prices were also on the rise for platinum and palladium. “Friday’s short covering market action along with hope for a good year for the automotive industry, were seen pulling up platinum and palladium,” Gero said.

Silver, has also been playing catch-up due to the better economic news, he said. “Along with this, there was less fear of gold selling by the European Central Banks or the IMF for the moment, as prospects of a Greek rescue package strengthened,” Gero said.

The European Union and the International Monetary Fund are expected to come out with a detailed statement on the weekend. This could lead to heightened market volatility as today marks the last trading day of April.

–By Daniela Cambone of Kitco News

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Capital Gold Group Report: Gold prices highest since December on euro zone debt fears

By Claudia Assis & Kate Gibson, MarketWatch

April 28, 2010, 4:55 p.m. EDT

SAN FRANCISCO (MarketWatch) — Gold futures finished at their highest since early December and notched a fourth consecutive winning session Wednesday as a debt ratings downgrade for Spain reignited fears of a spreading sovereign debt crisis in Europe.

Gold for June delivery gained $9.60, or 0.8%, to $1,171.80 an ounce on the Comex division of the New York Mercantile Exchange, the highest close since early December.

“Gold is riding the coattails of its role as the currency of fear,” said Richard Ross, a technical analyst with Auerbach Grayson in New York.

Prices had bounced between gains and losses in early Wednesday trade. They got a decisive push upward as market stumbled on news that Standard & Poor’s had downgraded Spain’s debt a day after it downgraded bonds from Portugal and Greece.

Gold has ignored a stronger dollar in its march upward. That “just reinforces the notion that there are a lot more reasons to own gold” and bullion is likely the main beneficiary of the latest financial storms, he added.

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Capital Gold Group Report: S&P Cuts Spain’s Rating One Notch on Economic View

* Lower growth could make it harder to cut deficit

(Updates throughout with Fitch, Moody’s, comments)

NEW YORK/MADRID, April 28 (Reuters) – Standard & Poor’s on Wednesday cut its ratings on Spain by one notch to AA from AA-plus, saying a longer-than-expected period of low growth could undermine efforts to cut the budget deficit.

The outlook is negative, reflecting the possibility of another downgrade if Spain’s fiscal position worsens more than S&P currently expects, the agency said in a statement.

“In our opinion, Spain is likely to have an extended period of subdued economic growth, which weakens its budgetary position,” Standard & Poor’s said.

“We now project that real gross domestic product (GDP) growth will average 0.7 percent annually in 2010-2016, versus our previous expectations of above 1 percent annually over this period,” S&P said.

The rating action sent the euro currency sharply lower, to one-year lows against the dollar, as Spain became the third euro periphery country to receive a downgrade by Standard & Poor’s this week. Greece and Portugal were downgraded on Tuesday.

Analysts have said that because Spain is a considerably larger economy than debt-riddled Greece and Portugal any worsening of its creditworthiness could create yet bigger headaches for the euro zone as it deals with Athens’ crisis.

“Indeed, Spain is the 800 pound gorilla in the room. Greece and Portugal are small countries, but Spain is about five times their size with regards to GDP,” said Win Thin, Senior Currency Strategist, at Brown Brothers Harriman in New York.

“It doesn’t surprise me,” said Jamie Danhauser, an analyst at Lombard Street Research. “I think Spain has got off very lightly in terms of how the market has been perceiving it going forward. I think the Spanish banking sector is a lot more unstable than is often appreciated once you don’t look at Santander (SAN.MC) and BBVA (BBVA.MC).”

BOND SPREADS

In fact, ahead of the rating action by S&P on Wednesday, Spanish bond spreads over German bunds hit their highest levels since the euro was launched, rising to as much as 136 basis points, up from 109 basis points on Tuesday.

Spain’s markets rushed lower after the downgrade news, with the IBEX .IBEX stock index closing 3 percent lower and Santander (SAN.MC), Spain’s largest bank, slumping 4.18 percent.

“At this point it is going to be very important to see what happens today, tomorrow, in the very short term with the response that the European Union (EU) and the International Monetary Fund (IMF) put together to arrest the Greece situation,” said Martin Schwerdfeger, economist at Toronto-Dominion Bank in Toronto.

Standard & Poor’s has now downgraded Spain twice since the global economic crisis started. The other two, Moody’s and Fitch, maintain Spain on their top ratings.

However, Javier Cantavella Nadal of S&P said the downgrade in no way put in question Spain’s ability to meet its debt obligations.

“Spain’s ability to meets its obligations as an issuer is very strong and has not changed,” Cantavella Nadal said in a conference call.

Fitch sovereign analyst Brian Coulton told Reuters that his agency rates Spain AAA with a stable outlook, saying the fiscal adjustment program put in place by the government is strong.

Spain’s Socialist government has promised to cut its budget deficit from 11.2 percent of GDP in 2009 to the EU limit of 3 percent by 2013 with measures including a hike in value added tax and a freeze on civil servants’ pay.

Government officials said the S&P downgrade would not put in doubt plans to cut the budget deficit.

“The important thing now is to underpin measures to establish a stable medium- to long-term growth pattern, which is the basic aim, because in fact the revision does not cast doubt on our deficit consolidation programme,” Economy Secretary Jose Manuel Campa told Reuters.

Moody’s would not comment on its rating of Spain.

“It seems to be one (downgrade) after the other. Only a few months ago it looked like it was contained to Greece and in the last 24 hours we are seeing the contagion effect having a firm grip across Europe,” said Manoj Ladwa, senior trader at ETX Capital.

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Capital Gold Group Report: Gold rises as euro zone debt fears linger

Jan Harvey LONDON Thu Apr 29, 2010 10:54am EDT
(Reuters) – Gold firmed on Thursday as persistent fears over euro zone debt levels underpinned prices, though a recovery in risk appetite kept the metal below the previous session’s 2010 highs.

Gold on Wednesday hit its highest this year at $1,174.18 an ounce after Standard & Poor’s cut its credit ratings on Spain, a day after downgrading the ratings for Greece and Portugal.

But an upbeat outlook on the U.S. economy from the Federal Reserve later sharpened appetite for assets seen as higher risk, such as equities, taking some momentum away from gold.

Spot gold was bid at $1,167.25 an ounce at 1414 GMT, against $1,164.45 late in New York on Wednesday. U.S. gold futures for June delivery on the COMEX division of the New York Mercantile Exchange dipped $3.90 to $1,167.90.

“Gold has benefited from the sovereign debt problems, which reached a head the day before yesterday,” said Credit Agricole analyst Robin Bhar.

“We have had some calmer markets since the first wave of panic hit the markets, then subsided. But it is still supported by those fears.”

The euro rose on Thursday, rebounding from the previous day’s one-year low on hopes a bail-out plan for debt-stricken Greece would be finalized soon.

Equities also climbed on Wall Street and in Europe as the Fed’s more upbeat view of the U.S. economy eclipsed the euro zone’s debt issues. Oil prices rose sharply.

Assets seen as higher risk such as the euro, stocks and commodities were sold after Standard $ Poor’s downgraded Spain, but the news lifted gold. The metal remains well-supported above $1,165 as fears persist over the outlook for the euro zone.

“Eventually things are going to get worse,” said Patrick Armstrong, managing partner of London-based Armstrong Investment Managers. “Countries don’t get out of this kind of debt spiral without defaulting or having inflation.”

INFLATIONARY PRESSURES

“We think defaults are less likely, but inflationary pressures are going to shoot up a lot in the next decade,” he added. “We think inflation is the endgame for almost every Western central bank. That’s why we have big positions in gold and precious metals as an alternative to sovereign currencies.”

Investment interest in gold was firm, with holdings of the world’s largest gold exchange-traded fund, the SPDR Gold Trust, hitting a record 1,152.9 tons on Wednesday.

Holdings of a London-based gold ETP (PHAU.L) operated by London’s ETF Securities also rose 29,450 ounces on Wednesday to 3.521 million ounces, their highest since October last year.

But high prices weighed on jewelry demand in major consumer India, with traders taking to the sidelines for a third day as prices traded above the 17,000-rupee mark, dealers said.

Among other precious metals, silver was at $18.18 an ounce against $18.06, platinum at $1,713 an ounce against $1,707, and palladium at $546.50 against $538.50.

Holdings of ETF Securities’ London and Zurich palladium ETPs saw an outflow of nearly 7,000 ounces or 1.1 percent as of Wednesday. Investment in products like ETPs has been an important source of demand for the metal this year.

“Now that short-term sentiment toward platinum and palladium has been clouded by risk aversion stemming from the Eurozone’s debt crisis, ETFs are potentially at risk of liquidation,” said UBS analyst Edel Tully in a note.

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Capital Gold Group Report: Gold Gains as European Sovereign Debt Fears Rise

Gold Gains on Safe-Haven Buying as European Sovereign Debt Fears Heightened

By Jim Wyckoff
27 April 2010, 2:18 p.m.

Comex gold futures closed higher, nearer the session high and hit a fresh three-week high Tuesday as traders sought out gold as a safe-haven purchase and did some bargain-hunting buying at lower price levels seen in earlier trading. The gold market bulls put in an impressive performance by pushing prices higher despite a stronger U.S. dollar index and solidly lower crude oil futures prices. June Comex gold closed up $8.20 an ounce at $1,162.20.

Fears of a European sovereign debt contagion were heightened Tuesday as debt-rating agencies once again lowered their credit ratings on Greece and on Portugal. Most bond markets in Europe felt the pressure of the ratings downgrades issued to Greece and Portugal Tuesday. The Euro currency slumped lower on the news. The debt contagion fears produced safe-haven buying of gold Tuesday as traders moved to hedge further downside European currency risk by buying the precious yellow metal. Gold bulls were especially impressed by Tuesday’s price action due to the fact that the shrinking risk appetite did invite buying interest in gold. In recent weeks, some traders and analysts have attributed weakening gold prices on given days to a lessening investor risk appetite due to the Greek debt crisis.

The London P.M. gold fixing was $1,149.50, compared to the previous P.M. fixing of $1,154.50.

The two-day meeting of the U.S. Federal Open Market Committee meeting that began Tuesday morning and ends Wednesday afternoon is garnering less attention Tuesday due to the Greek and Portugal debt downgrades. It is widely expected the Fed will not raise interest rates at this meeting. However, the wording of the Fed statement following the meeting could hold clues to the Fed’s actions in the coming weeks or few months.

From an important near-term technical perspective, June gold futures scored a bullish “outside day” up on the daily bar chart Tuesday and hit a fresh three-week high. Gold bulls have the firm near-term technical advantage and gained some more upside momentum Tuesday. Prices are in an 11-week-old uptrend on the daily bar chart. Bulls’ next upside technical objective is to produce a close above solid technical resistance at the April high of $1,170.70. Bears’ next downside price objective is closing prices below solid technical support at last week’s low of $1,124.30. First resistance is seen at Tuesday’s high of $1,165.30 and then at $1,170.70. Support is seen at $1,155.00 and then at $1,150.00.

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Capital Gold Group Report: Gold Most Likely to Double

23 April 2010, 04:37 p.m. EST
By John Dourekas
Of Kitco News

Hong Kong (Kitco News) — Gold will most likely double from its current $1150 an ounce during the course of the bull market, according to Puru Saxena, founder of Puru Saxena Wealth Management.

In an exclusive interview with Kitco News, Saxena said one major factor in gold’s favor “is that central banks have now become net buyers of gold. So that reduces supply from the market,” said Saxena.

Investment demand will appreciate over time as people become more dubious over currencies and they transfer assets into gold as a hedge, said the investment adviser from his Hong Kong office.

He thinks inflation will occur at an accelerated pace over the next few years. “Real interest rates are negative in most countries, so gold should continue to benefit purely as an anti-currency because people lost faith in the euro and the dollar,” he said. “At some point people are going to say well, ‘we don’t want to lose purchasing power in currencies that are dubious, we want gold as an insurance.’”

Saxena is not so optimistic, however, for base metals, which he said are likely to struggle. “If you look at the inventory levels at the London Metals Exchange, the stockpiles are extremely elevated and inflated,” he said. “So even though copper, lead and zinc have had a big run-up since last August, inventory levels have actually increased, so that leads us to believe it is speculation.”

As for the sudden rise of palladium, Saxena cautions against this metal for now. “Palladium has gone parabolic. Usually when you have a parabolic spike they are followed by a parabolic collapse,” he said. “I think palladium will have a big correction and when it does, that will be the time to buy.”

Currently, Saxena said he is fully invested in his preferred companies. “We think the bull market will run for another couple of years – in my view we will see a big boom again in all asset classes,” he said.

Saxena sees more opportunities in precious metals and energy.  He said that he is invested 35% in energy and 15% in precious metals. On currencies he prefers the Canadian and Australian dollar, as well as the Singaporean Dollar, Chinese Yuan and the Indian rupee.

American Revival?

Saxena does not subscribe to the bearish view that has America on the wane. “The US is still the world’s largest economy,” he said. “Surely it is losing its dominance as countries in Asia climb-up the prosperity ladder but it will be a gradual transition. I don’t think the US is going to go down in flames.  Ultimately the American consumer will come roaring back.”

He is, however, skeptical of the lack of clean-up of the financial system. Throughout the recession the total debt in America has continued to expand and this is the crux of the problem, he said. “You cannot solve a problem of over-leverage and excess debt by taking on more and more debt. You can’t put band-aids on the problem or you will eventually have a currency crisis,” said Saxena.

Saxena said that over time the consequences of this will be twofold: longer term interest rates will increase substantially over the next decade and the CPI, which he calls a “terribly flawed barometer of inflation” will double in seven to eight years. In turn, he said, the US dollar’s purchasing power will diminish against hard assets.

The US has three options for survival, said Saxena, “It can either accept a painful recession. They can default because it cannot pay back liabilities or the third option is monetary inflation. I suspect they will continue to debase the value of the dollar and print greenbacks.”

In the future, Saxena said that he predicts the financial industry will become more heavily regulated.  “A bank should either operate as a commercial bank with no investment banking or if you go into investment banking the government should not bail you out.” “If you make mistakes you should be penalized and the bond and shareholders lose everything.”

EU Debt Crisis

Saxena is not a big fan of Europe. “I think the IMF or European Union will bail out offenders but that is a band-aid on the problem and it will be a long-term negative effect for the euro,” he said. “I think the euro is a terribly flawed currency because you have so many different nations with different objectives, requirements and problems all lumped into one basket.”

The problems with Western Europe are the same as in the US, said Saxena. “Too many excesses; too much credit; too much consumption and not enough savings.”

No End for Goldman

Saxena said Goldman Sachs has been made a scapegoat and will survive the tribulation. “The biggest offenders are Freddie Mac, Fannie Mae and the regulators themselves because all these shenanigans were occurring right under their noses,” he said. “Regulators knew what was going on… So I think to come back at Goldman alone is a bit unfair –I think you have to go after everyone.” He said that in five years from now people will have forgotten about this ordeal.

China Correction

Property in certain cities in China are certainly overvalued, said Saxena. “If you look at Beijing and Shanghai the properties have become incredibly unaffordable — it takes 20 years of income for the average household to buy a property,” he said.

A correction in China will occur when there is more monetary tightening, said Saxena. When this will happen? Saxena does not know. “One thing working in favor of Chinese assets is that China doesn’t allow the Chinese to invest overseas – so the money is all contained within the economy,” he said.

As for the purchase of the IMF’s 191.3 tonnes of gold, Saxena forecasts Asian Central Banks will purchase a significant amount. “Over time as these cash piles for China and India continue to get bigger and bigger with foreign exchange reserves, they will turn towards buying hard assets,” said Saxena. He does not think IMF gold sales are a big threat to the markets as they were four or five years ago.

Market Manipulation?

Regarding rumored gold market manipulation by the major banking powers, Saxena has some suspicions and would not be surprised if some paper selling was occurring to keep the gold price down.

“The central and private banks make their money by promoting the fiat money system –if the price of gold suddenly jumps fivefold, that is a red flag that there is something seriously wrong with the system,” he said. “It would not be surprising for me to hear that they are suppressing the price of gold – we had the biggest financial crisis in decades and rather than increasing in value, the price of gold actually fell.”

Saxena said he has been following the work of GATA for a long time and “they make a reasonable case for that, but my argument is; what market is not manipulated? Everything is manipulated,” he added.

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Capital Gold Group Report: Gold Prices Rebound on Stronger Euro

NEW YORK (The Street) — Gold prices were rising Friday as Greece awaits financial aid from the EU and IMF and the euro rebounds.

Gold for June delivery was up $5.80 to $1,148.70 an ounce at the Comex division of the New York Mercantile Exchange. The gold price Friday has traded as high as $1,147.90 and as low as $1,135.20. The U.S. Dollar index was rising 0.12% to $81.67 while the euro was rising 0.32% against the dollar. The spot gold price today was up over $6, according to Kitco’s gold index.

Gold prices reversed earlier losses as Greece officially asks for financial aid from the IMF and European Union. Details are still being worked out but in the next week Greece should have access to 40 billion euros at 5% interest, which is considerably lower than the 8.7% yield the country is currently paying on its 10-year bonds.

The euro had come under significant pressure as Greece struggled to come up with the money to pay back its May debt and interest payments. The recent downgrade of Greek debt by Moody’s and reports that both Greece and Ireland had larger-than-expected 2009 budget deficits dragged on the euro, boosted the dollar and weighed on gold. Prices are now targeting the $1,160 an ounce area as gold gets some more breathing room as the markets digest a Greece resolution.

“With Greece officially asking for assistance from the International Monetary Fund and the European Union, global currencies will likely remain volatile over the near-term, impacting metal and mineral prices,” says Anthony Rizzuto, Jr., managing director of Dahlman Rose & Co. in his daily metals report. “We continue to believe that underlying demand for raw materials will trend higher as the global economy gains traction.”

Many analysts expect the gold price to stay in a tight range as the metal trades as both a risk and safe haven asset. Those investors looking to trade gold might sell the metal and buy the U.S. dollar as the euro continues to struggle. On the other hand, investors concerned about the health of paper currency like the euro might buy physical gold as an alternative investment as a long term hedge. This tug of war is restricting gold’s upside but providing support around $1,120 an ounce. A surge in U.S. new-home sales Friday helped boost investor risk appetite for equities and gold.

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Capital Gold Group Report: Gold Run Not Over: Marc Faber

22 April 2010, 02:17 p.m. EST By John Dourekas

Hong Kong (Kitco News) — The rising price of gold is far from over since paper money will continue to lose value, according to Marc Faber, editor and publisher of The Gloom, Boom & Doom Report. “If you have $100 today, you buy that much less in terms of a basket of goods and services then you did ten years ago – paper money has already lost a lot of value and in my view it will continue to lose value.  The price of gold will adjust on the upside according to the loss of the purchasing power of money,” Faber said in an exclusive interview with Kitco News. Still bullish on gold, Faber views precious metals as currencies, not commodities. He said that precious metals are currently his currencies of choice. Currently, stronger currencies such as the Canadian and Australian Dollar are still vulnerable to a slowdown in the Chinese economy, he said on the sidelines of the World MoneyShow in Hong Kong. Faber said that he continues to buy the yellow metal, “If someone is rich they should buy a ton every month. “ He also said that everyone should buy gold because of the low US interest rates, “At zero percent interest, I don’t see why someone would not have part of their money in gold and silver.” Faber said that “as far as the eye can see, interest rates under Bernanke will stay at zero and below.”   He noted that the current Vice Chairman of the Fed , “Janet Yellen, another totally, ignorant economist, removed from any reality, said herself six months ago, ‘if I could implement interest rates below zero, I would do it.’ So now you know what the policy in the US will be,” Faber said. He also said that if gold prices substantially rise one day, there could be expropriation. “The Americans could force the Europeans to do the same – once they have all the gold in the world they would re-value it at $10,000 an ounce,” Faber said. Goldman Sachs: Politically Motivated Ordeal Faber does not think the SEC charges against Goldman Sachs will have a very significant impact on the markets since the accusations are “purely politically motivated.” “Obama has lost the trust of the people; his approval rating is worse than Bush at this stage in the presidency.  When people are dissatisfied in a democracy – you go after a minority to target – in the case of America you go after Goldman Sachs because it is the symbol of Wall Street and excessive money creation and there is also a tone of anti-Semitism there.” He added, “Mr. Obama will do everything he can to get re-elected and that may involve some very bad decisions. He is like a roman emperor; he just gives out bread to the mob and produces games and circuses.” Overall, Faber has little hope for financial reform in the U.S. “The U.S. should have less regulation and not more regulation – that is the origin and cause of the crisis.” Market Manipulation On the subject of market manipulation talk, Faber said that if market manipulation exists then it is good for gold buyers since it keeps the price down. “If you have manipulation to keep the price down, it eventually goes ballistic. So, all the people that are bitching about the manipulation of silver and gold should be happy that it is manipulated because it still gives them an opportunity to buy it at a depressed priced,” Faber said. Faber said he suspects that there may have been some efforts by Central Banks to keep the price down but wouldn’t go as far to call that manipulation. “If someone talks about manipulation, well,  I think the whole world through government intervention has become manipulated so it is very difficult to make forecasts,” said Faber. China Bubble? Is China headed for a bubble? “For sure,” said Faber. “The symptoms are there. It is a bubble when something goes substantially above the trend, when there is excessive credit gross and when there is excessive speculation. All these elements are in China,” said Faber who predicted the Japan and NASDAQ bubble collapse. “If everything is so great in China, why is the Chinese stock market lower today than it was in August in 2009?” he asked. Faber pointed at Wednesday’s weak signals in large steel companies such as Rio Tinto and Freeport McRoan. The demand for industrial commodities will be quite vulnerable with the China slowdown, he said. Greek Tragedy A Greek bailout is bad news for the euro, said Faber. “It increases the liabilities of the government and I really think Greece will go bust. What does Greece produce? Olive oil and tourism. This is not sufficient to bail out Greece.” –By John Dourekas of Kitco News, jd@kitco.com Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA gold

Capital Gold Group Report: IMF Warns of New Phase in Global Financial Crisis

By Tom Barkley and Bob Davis

APRIL 20, 2010

WASHINGTON—Greece’s upheaval could mark the starting point of a “new phase” in the global financial crisis, one marked by escalating concerns about sovereign debt, the International Monetary Fund warned Tuesday.

“Higher debt levels have the potential for spillovers across financial systems, and to impact financial stability,” the IMF said, noting that debt levels among advanced countries have already risen to levels not seen since the end of World War II.

Mounting risks of sovereign default can reverberate through the global economy, the IMF said, including by pushing up interest rates on government debt, which in turn causes interest rates on commercial debt to rise as well. A diminished faith in the value of government guarantees can also push up borrowing costs across nations as the market demands higher interest rates for commercial debt.

Tuesday’s warnings come at a time when the global concern over bank losses appears to have ebbed. In its semiannual Global Financial Stability Report, the IMF projected that global banks would book losses of $2.3 trillion for the 2007-2010 period, down from its October 2009 projection of $2.8 trillion in losses. About $1.6 trillion has already been written off, it said, with another $700 billion in losses still to be recognized. The report estimated that banks could cover those losses through their anticipated earnings.

“Banks have been raising significant amounts of capital so that now they can cope with the losses that are coming in a way that puts them in a rather comfortable position,” Jose Vinals, director of the IMF’s monetary and capital markets department, said in a discussion with reporters.

Two former senior IMF economists, Kenneth Rogoff, now at Harvard, and Carmen Reinhart, now at the University of Maryland, have been warning that banking crises frequently lead to sovereign debt crises several years later, in part because governments spend so heavily to restore their banking systems to health. Essentially, the IMF report was adding detail to the work of Mr. Rogoff and Ms. Reinhart.

“Careful management of sovereign risks is essential: governments need to design credible medium-term fiscal consolidation plans in order to curb rising debt burdens and avoid taking the credit crisis into a new phase,” the IMF said in its report. Greece’s struggles to get out from under a mountain of debt should serve as a “wake-up” call to governments, said Mr. Vinals.

Still, Mr. Vinals was quick to describe Greece as a special case that shouldn’t be lumped together with other countries whose deficits have come under the market’s glare—Spain, Portugal and Ireland. Those countries started out with better fiscal situations and institutions than Greece, he said, and have already taken measures to address budget concerns.

Speculation in sovereign credit-default swaps, which Greek Prime Minister George Papandreou has blamed for helping push the country deeper into crisis, may sometimes exaggerate public debt strains, said Mr. Vinals. He said proposals to ban naked CDSs—betting on the default of a credit without having an underlying interest in the bonds—would be counterproductive given the difficulty of defining illegitimate activities.

The IMF report noted that money is now flooding into Asia and other emerging markets, particularly because interest rates are so low in the U.S. and Europe. Some markets are showing evidence of overheating, and not only in developing countries, the IMF said. These include residential real estate in Australia, China, Hong Kong and France, and sovereign debt in Japan.

“But we find little evidence that bubbles have formed in these segments in the near term,” the IMF found.

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Capital Gold Group Report: GOLDMAN SACHS & CO. ACCUSED OF FRAUD BY SEC

Marcy Gordon, AP Business Writer, On Friday April 16, 2010, 11:22 pm EDT

WASHINGTON (AP) — The government on Friday accused Wall Street’s most powerful firm of fraud, saying Goldman Sachs & Co. sold mortgage investments without telling the buyers that the securities were crafted with input from a client who was betting on them to fail.

And fail they did. The securities cost investors close to $1 billion while helping Goldman client Paulson & Co., a hedge fund, capitalize on the housing bust. The Goldman executive accused of shepherding the deal allegedly boasted about the “exotic trades” he created “without necessarily understanding all of the implications of those monstrosities!!!”

The civil charges filed by the Securities and Exchange Commission are the government’s most significant legal action related to the mortgage meltdown that ignited the financial crisis and helped plunge the country into recession.

The news sent Goldman Sachs shares and the stock market reeling as the SEC said other financial deals related to the meltdown continue to be investigated. It was a blow to the reputation of a financial giant that had emerged relatively unscathed from the economic crisis.

Goldman Sachs denied the allegations. In a statement, it called the SEC’s charges “completely unfounded in law and fact” and said it will contest them.

The SEC is seeking to recoup the money lost by investors and impose unspecified civil fines against Goldman Sachs and the executive, Fabrice Tourre. The SEC could enter into settlement negotiations over the amount if Goldman changed its stance and decided not to fight the charges in a trial.

The SEC said Paulson paid Goldman roughly $15 million in 2007 to devise an investment tied to mortgage-related securities that the hedge fund viewed as likely to decline in value. Separately, Paulson took out a form of insurance that allowed it to make a huge profit when those securities’ value plunged.

The fraud allegations focus on how Goldman sold the securities. Goldman told investors that a third party, ACA Management LLC, had selected the pools of subprime mortgages it used to create the securities. The securities are known as synthetic collateralized debt obligations.

The SEC alleges that Goldman misled investors by failing to disclose that Paulson & Co. also played a role in selecting the mortgage pools and stood to profit from their decline in value. Two European banks that bought the securities lost nearly $1 billion, the SEC said.

“Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party,” SEC Enforcement Director Robert Khuzami said in a statement.

But Goldman said in a statement that it never mischaracterized Paulson’s strategy in the transaction. It added that it wasn’t obliged to “disclose the identities of a buyer to a seller and vice versa.”

The charges name only Goldman Sachs and Tourre, who was a vice president in his late 20s when the alleged fraud was orchestrated in 2007. Tourre, the SEC said, boasted to a friend that he was able to put such deals together as the mortgage market was unraveling in early 2007.

In an e-mail to the friend, he described himself as “the fabulous Fab standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!”

Tourre, 31, has since been promoted to executive director of Goldman Sachs International in London.

Stanford University spokeswoman Elaine Ray said a student by the name of Fabrice Tourre received a master’s degree in management science and engineering from the school in 2001.

A call to a lawyer for Tourre, Pamela Chepiga at Allen & Overy LLP, wasn’t returned.

Asked why the SEC did not also pursue a case against Paulson, Khuzami said: “It was Goldman that made the representations to investors. Paulson did not.”

Paulson & Co. is run by John Paulson, who reaped billions by betting against subprime mortgage securities. He is not related to former Treasury Secretary Henry Paulson, a former Goldman CEO.

John Paulson was among the first on Wall Street to bet heavily against subprime mortgages. His firm earned more than $15 billion in 2007, and he pocketed $3.7 billion. He has since earned billions more, largely by betting against bank stocks and then buying them back after their shares plunged.

In a statement, Paulson & Co. 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.”

Goldman, founded more than 140 years ago, built a reputation as a trusted adviser to investment banking clients and for sending top executives into presidential Cabinet posts.

In recent years, it shifted toward taking more risks with its clients’ money and its own. Goldman’s trading allowed the firm to weather the financial crisis better than most other big banks. It earned a record $4.79 billion in the last quarter of 2009.

The complaint filed in federal court in Manhattan “undermines their brand,” said Simon Johnson, a professor at the Massachusetts Institute of Technology and a Goldman critic. “It undermines their political clout. I don’t think anybody really values being connected to Goldman at this point.”

He continued: “There are many people who — until this morning — thought Goldman Sachs was well-run.”

The SEC’s enforcement chief said the agency is investigating a wide range of practices related to the crisis. The prospect of possible legal jeopardy for other major financial players roiled the stock market.

Goldman Sachs shares fell more than 12 percent Goldman and lost $14.2 billion in market capitalization. The Dow Jones industrial average finished down more than 125 points.

The SEC appears to be taking a particularly aggressive approach with Goldman. Typically, cases are resolved by firms agreeing to a settlement before the charges are made public, said John Coffee, a securities law professor at Columbia University.

“The SEC has changed its style,” Coffee said. “They wanted to tell the world what they thought Goldman had done wrong.”

The charges come as lawmakers seek to crack down on Wall Street practices that helped cause the financial crisis. Congress is considering tougher rules for complex investments like those involved in the alleged Goldman fraud.

President Barack Obama vowed Friday to veto a financial overhaul bill that doesn’t regulate mortgage-backed securities and other so-called derivatives. Legislation in Congress would for the first time regulate derivatives, whose value depends on an underlying asset, such as mortgages or stocks. Senate Republicans oppose the bill.

Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, is “pleased that the SEC is departing from the lax enforcement of the Bush administration and is returning to the SEC’s proper role of protecting investors in the marketplace,” spokesman Steven Adamske said.

The biggest loser in the alleged fraud was ABN Amro, a major Dutch bank, and the Royal Bank of Scotland, which acquired major portions of it in 2007. The SEC said the Royal Bank of Scotland paid Goldman $841 million to unwind ABN transactions.

IKB Deutsche Industriebank AG, a German commercial bank, lost nearly all its $150 million investment, the agency said. Most of the money the banks lost went to Paulson in a series of transactions between Goldman and the hedge fund, the SEC said.

IKB was an early casualty of the financial crisis. It issued a profit warning in 2007 saying it had been hurt by U.S. subprime mortgage investments. IKB was sold in 2008 to Dallas-based Lone Star Funds.

Ed Trissel, a spokesman for Lone Star Funds, declined to comment on the case.

The SEC charges come after Goldman Sachs denied last week it that bet against clients by selling them mortgage-backed securities while reducing its own exposure to them.

In an annual letter to shareholders, Goldman said it began reducing its exposure to the U.S. mortgage market in late 2006.

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