Gold May Weaken as Goldman Fraud Case Spurs Demand for Dollar

By Kim Kyoungwha

April 19 (Bloomberg) -- Gold may weaken, after slumping Friday by the most since Feb. 4, on speculation that a fraud suit by U.S. regulators against Goldman Sachs Group Inc. will increase demand for the dollar as a safe investment.

Gold for immediate delivery fell as much as 0.3 percent to $1,134 an ounce before trading little changed at $1,137.10 at 8:55 a.m. in Singapore. The metal tumbled 1.9 percent on April 16. The dollar strengthened 0.2 percent against a basket of six currencies as Goldman faces a probe in Britain and scrutiny from Germany after being sued for fraud.

Investors “saw Goldman’s case as a sell signal and we did see the U.S. dollar firmer,” said Toby Hassall, a commodity analyst with CWA Global Markets Pty Ltd. in Sydney. “It seems to have shaken confidence. If we see flight-to-safety buying of the dollar, that might put gold prices on the defensive.”

The Securities and Exchange Commission alleged that Goldman created and sold securities linked to subprime mortgage-backed securities. 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 of the SPDR Gold Trust, the biggest exchange-traded fund back by the metal, and Goldman was the 11th biggest. Paulson is also the top investor in AngloGold Ashanti Ltd., Africa’s largest producer.

Silver was little changed at $17.72 an ounce, platinum fell 0.3 percent to $1,687.50 an ounce and palladium lost 0.5 percent at $527.25 an ounce.

To contact the reporter on this story: Kyoungwha Kim in Singapore at Kkim19@bloomberg.net