I think we’re going into a tough quarter for Goldman Sachs Group Inc (NYSE:GS). The bank will find it difficult to thrive with all this market volatility.
Goldman Sachs institutional client services
Source: Goldman Sachs
In the first quarter, Goldman Sachs Group Inc (NYSE:GS) reported a 10% year-over-year decline in its institutional client-services segment, which handles all of the fixed income, currency, and commodities execution. With the recent decline in the price of gold and silver, I could only imagine things getting worse inside of this Goldman business segment. The broader stock market also declined, so it’s highly probable that the stock trading division could report a year-over-year decline on earnings.
Source: YCharts
Asset management flows have been on the decline over the past of couple months. More particularly, mutual funds seem to be gaining in assets under management. The trouble over at Goldman Sachs Group Inc (NYSE:GS) is that this declining growth in assets under management, recent equity sell-off, and volatility across currencies and commodities will make for a difficult quarter.
Analysts on a consensus basis anticipate that the company will grow earnings by 65.7% year-over-year. The hoped-for outcome is that the bank has some hedges against market volatility, or will experience the added benefit of volume, which would increase the amount of revenue earned from client-execution services.
However, in the previous quarter the company’s earnings report indicated a year-over-year decline in the amount of revenue earned from client-execution services and this was because of bond market, currency market, and gold volatility. I think there’s a very real possibility that Goldman Sachs Group Inc (NYSE:GS) could miss earnings this quarter.
Gold and silver a nightmare
The Federal Reserve has plans of cutting back its monetary easing practices over the next two years. This means that gold and silver investors are in for a major decline in the value of these commodities.
Source: Ycharts
The SPDR Gold Trust (ETF) (NYSEMKT:GLD) has declined by 17.7% over the past year, and the iShares Silver Trust (ETF) (NYSEMKT:SLV) has declined by 25.8% over the same period. The decline in both ETFs is exacerbated by the fact that the Federal Reserve will consider some tapering of bond purchases toward the end of 2014. One of the best arguments to being a gold and silver bull was the money printing of the Federal Reserve and the potential of run-away inflation.
In the gold and silver market, the value is based on the perception of the commodity. If the commodity is perceived to have future value investors will buy it in hopes of future price increases. But without the hopes of rampant inflation, both silver and gold are being sold off.
Source: Federal Reserve Bank
