Goldman Sachs Group, Inc. (NYSE:GS) released an official statement today denying complicity in artificially raising the price of aluminum. Recent reports, from The New York Times among others, have suggested that Goldman Sachs and its subsidiary Metro International Trade Services exploit pricing regulations in order to raise the price of the commodity.
In its official statement, Goldman Sachs Group, Inc. (NYSE:GS) denied the allegations and offered statistics supporting that denial. The accusations have been followed in recent days by promises from the Federal Reserve and the U.S. Senate to investigate commodity trading by investment banks, including Goldman Sachs.
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Goldman Sachs lowers aluminum prices
According to the statement from Goldman Sachs Group, Inc. (NYSE:GS), the price of delivered aluminum has fallen by close to 40% since 2006. The investment bank also said that 95% of aluminum used in production comes from sources outside of the London Metal Exchange program, which the bank was accused of exploiting for extra profit.
Goldman also pointed out some important factual errors contained in the reports accusing them of price manipulation. The company said that warehousing operations like Metro International Trade Services do not decide when and where the metal they store gets moved. The owners of the metal do that, and the warehousing operators under the LME system are specifically prohibited from owning the metal in their warehouses.
Goldman Sachs Group, Inc. (NYSE:GS) is at pains to point out that the LME system exists to deal with times when there is a substantial overproduction of aluminum that the market cannot deal with. The bank points out that during the financial crisis the warehousing system tripled the amount of metal it held in order to help producers adjust to changes in demand.
Regulators looking closer at banks who own commodities
Goldman Sachs Group, Inc. (NYSE:GS) is not the only investment bank in the commodities market, and Goldman isn’t the only company that regulators are looking at in their investigations of the commodities market. The Federal Reserve is looking at commodities trading because of its effects on the whole economy, rather than the small aberration that Goldman is accused of.
The U.S. Senate is also looking at the bigger picture. Investment bank control of swathes of the commodity market has led to several accusations of price manipulation, though none of those accusations has been proven. There are also strategic questions about the trade in commodities so valuable for the running of the United States economy.