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Goldman Sachs Cuts Commodities Exposure

Goldman Sachs’ commodities trading risk has hit a near-seven-year low, its quarterly results on Jan. 19 showed, suggesting the Wall Street giant had become less aggressive lately in taking advantage of surging oil, metals and grains prices.

Goldman’s Value-at-Risk (VaR) for commodities stood at $23 million for the fourth quarter ended Dec. 31. That was down 20 per cent from the $29 million in the third quarter and almost 40 per cent lower than the $38 million seen a year ago (all figures US$).

VaR is an industry measure for how much of a bank’s money is at risk on a day for trading a particular asset class. Goldman’s VaR readings are particularly watched as it is the world’s largest investment bank and one of the biggest in commodities trading.

Goldman raised its risk in equity and currency trading during the fourth quarter. But it slashed its commodities VaR, bringing it to the lowest since the first quarter of 2004 and trailing rival JPMorgan Chase, which assumed a higher risk for commodities in the fourth quarter.

Commodity markets, as measured by Reuters-Jefferies CRB index, jumped 16 per cent in the fourth quarter of 2010, their biggest growth in more than two years.

Goldman’s sharply pared risk in the asset class suggested it was putting on fewer of the big commodity trades it once did, a trend noticeable at major Wall Street banks since U.S. financial laws put a cap last year on how much of their own money banks could use to trade.

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