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Since oil’s initial decline last Summer, conspiracy theorists have been questioning the motives behind Goldman Sachs' (NYSE:GS) move to lower the weightings of various energy components in its commodity indexes. Prior to the mid-term elections, some claimed that the lowered weight of gasoline was a 'favor' from Hank Paulson to the Republican Party in exchange for making him Treasury Secretary. Then in January, Goldman rebalanced energy again, which led to a further reduction of its weighting in the Commodity index. Although, we wonder how the January move can be considered a “conspiracy”- if it was another favor, it came a little bit late since the elections were long past.

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oil price

Rather than labeling these moves on Goldman’s part a conspiracy, it was more likely just a case of good indexing. After all, Goldman is considered by many to be the largest hedge fund on the planet with some of the best traders. Maybe Goldman was just being prudent by lowering its energy weightings as energy was beginning to become too large a part of its index. While we realize that the Goldman index is widely used as a benchmark, no one individual or firm (even Goldman) is bigger than the market itself. If Goldman were to make a move that was truly out of step with the market, investors would more than likely find themselves a more pertinent benchmark.

Editor's note: the iShares GSCI Commodity-Indexed Trust (NYSEARCA:GSG) is an ETF based on the Goldman Sachs Commodity Index

Source: Goldman's Commodity Indexes: Conspiracy or Smart Indexing?