this is from barry ritholtz, who explains the rationale for goldman sachs rebalancing its commodity indices. this is the same trick they used a couple of years ago to crush the price of natural gas and put the hedge fund amaranth out of business.

in the short term this will be bullish for energy, and bearish for gold, but the fundamentals for precious metals are so strong that i doubt it will have much impact on gold.

The major commodities indices are being rebalanced, and I am forced once again to question their timing.

Recall the last major rebalance: At the time, I had been challenged by Larry Kudlow to find a smoking gun for the sudden 2006 collapse of Oil prices a month or two before the mid-term election.

That challenge led us to discover the actual mechanism — the GSCI rebalancing. Just 3 months prior to the election, GS decided to significantly lower the weight of Oil and Natural Gas, effective a month prior to the election. Prices plummeted, albeit temporarily.

There was a cost to this: Subsequent performance of the index, reweighted with less energy, was negatively impacted, as energy prices for the following 2 years boomed, until Oil peaked at $147. The reweighted indices performed much wore than they would have had they not been changed in ‘06.

http://www.ritholtz.com/blog/2009/01...