Gold fell for a third day after U.S. Federal Reserve Chairman Ben S. Bernanke hinted at scaling back stimulus should the world’s largest economy strengthen further, and as investor holdings extended declines.

Spot gold dropped as much as 1 percent to $1,357 an ounce and traded $1,359.63 at 9:24 a.m. in Singapore. Prices lost 0.4 percent yesterday, reversing gains of as much as 2.8 percent, after Bernanke said that the Fed may reduce the pace of asset purchases in the next few meetings if policy makers can be confident of sustained improvement in the economy. The remarks sent the dollar 0.6 percent higher against a six-currency basket.

Gold tumbled into a bear market in April as some investors lost faith in the metal as a store of value and investment holdings contracted. Prices are down 19 percent this year on concern the Fed may rein in the quantitative-easing measures that helped bullion cap a 12-year bull run in 2012. The Fed currently buys $85 billion of Treasury and mortgage debt a month.

“Gold declined as the U.S. dollar strengthened after the U.S. Federal Reserve Chairman Ben Bernanke signaled that monetary stimulus may scale back soon if the U.S. economy remains strong,” Lachlan Shaw, an analyst at Commonwealth Bank of Australia, wrote in an e-mail.

Bullion for June delivery dropped 0.8 percent to $1,356.70 an ounce on the Comex in New York after falling for nine of the past 10 days. Futures have retreated 19 percent this year.

Assets in the SPDR Gold Trust, the biggest bullion-backed ETP, dropped to 1,020.07 metric tons yesterday, the lowest since February 2009, and are down 24 percent this year, according to data on the company’s website.

Cash silver declined 1.2 percent to $22.0265 an ounce, platinum lost 0.7 percent to $1,458.55 an ounce, and palladium fell 0.7 percent to $741.50 yesterday.

www.bloomberg.com

Energy price-reporting agencies including Platts said they ordered independent reviews of their methods after calls by regulators last year to safeguard against market manipulation.

Platts, the unit of McGraw Hill Financial Inc. that was raided last week as part of a European Union probe into oil pricing, said its review will start in June and be completed this year. Argus Media Ltd. and Reed Business Infomation’s ICIS said their evaluations would be completed by October. The process, which preceded and is separate from the EU inquiry, will examine whether the agencies comply with their own stated price-assessment methods, the companies said this week.

The appraisals are a response to calls by international regulators for “robust” controls to prevent manipulation and distortion of wholesale prices for commodities from crude oil to gasoline. Auditors will assess whether the agencies have adhered to principles set out last October by the International Organization of Securities Commissions, a Madrid-based group that brings together regulators from more than 100 countries.

“A review by an external auditor as called for by the IOSCO principles will demonstrate to regulators the strength of Platts’s internal controls,” Dan Tanz, the company’s vice president of editorial, said yesterday in an e-mailed statement from London. Platts has a long track record of “strong internal governance,” he said.

Office Raids

EU investigators last week raided the offices of Platts as well as oil companies Royal Dutch Shell Plc, BP Plc and Statoil ASA and fuel trader Argos Energies as part of a probe into potential price manipulation in crude oil, refined products and biofuels markets. Traders including Glencore Xstrata Plc, Vitol Group and Gunvor Group Ltd. were asked to give information to the EU, though they aren’t being investigated, according to three people familiar with the situation, who asked not to be identified because the matter is private.

The European investigation marks the third time global pricing benchmarks have drawn regulatory scrutiny in the past year following investigations into bank manipulation of the London interbank offered rate, or Libor, and ISDAFix, the benchmark for the $379 trillion swaps market.

“This is nothing like Libor,” Adrian Binks, Argus’s chairman and chief executive in London, said in an e-mail May 20. “Price reporting agencies are independent companies that compete with each other. It’s really industry’s choice to use our quotations. We’re not receiving money for the trades. We’re not like the banks.”

Argus, ICIS

Argus hasn’t been visited by the EU or been asked questions as part of the oil probe.

“We’ve agreed to go through this external audit on a voluntary basis to demonstrate that we’re following the best practices as set out by IOSCO,” Richard Street, ICIS’s head of regulation and compliance, said by phone yesterday from London.

Platts, Argus and ICIS publish benchmark prices for various commodities including crude, oil products, chemicals and natural gas.

Bloomberg LP, the parent of Bloomberg News, competes with Platts and other companies in providing energy-markets news and information.

www.bloomberg.com

Three U.K. business lobby groups told the European Union its proposed financial transaction tax will harm economic recovery and damage the trading bloc’s competitiveness.

The tax will be paid for by consumers, rather than the financial companies it targets, in the form of price increases, the Confederation of British Industry, the British Bankers’ Association and EEF, the U.K. manufacturers’ organization, said in a joint letter today, seen by Bloomberg News.

The EU estimates the tax could raise 30 billion euros ($39 billion) to 35 billion euros a year. The plan would charge a 0.1 percent rate for stock and bond trades and 0.01 percent for derivatives transactions, with some exemptions for primary- market sales and trades with the European Central Bank.

“The FTT is fundamentally a tax on growth and should be viewed as a major risk to Europe’s ability to recover from the current economic problems it faces,” said the letter to EU President Herman Van Rompuy, European Commission President Jose Barroso and Michael Noonan, finance minister for Ireland, which holds the EU’s rotating presidency.

The tax would affect everyday goods such as fixed-rate mortgages, gas and electricity, where suppliers use derivatives to hedge their exposure to market prices, as well as ordinary financial deals, the lobby groups said.

www.bloomberg.com

The following is from the SEC…

The Securities and Exchange Commission today charged the City of South Miami, Fla., with defrauding bond investors about the tax-exempt financing eligibility of a mixed-use retail and parking structure being built in its downtown commercial district.

An SEC investigation found that the city of 11,000 residents located in Miami-Dade County borrowed approximately $12 million in two pooled, conduit bond offerings through the Florida Municipal Loan Council (FMLC). South Miami’s participation in those offerings enabled it to borrow funds at advantageous tax-exempt rates. The city represented that the project was eligible for tax-exempt financing in various documents for the second offering that were relied upon by bond counsel in rendering its tax opinion. However, South Miami failed to disclose that it had actually jeopardized the tax-exempt status of both bond offerings by impermissibly loaning proceeds from the first offering to a private developer and restructuring a lease agreement prior to the second offering.

South Miami agreed to settle the charges and retain an independent third-party consultant to oversee its policies, procedures, and internal controls for municipal bond disclosures.

“South Miami’s fraudulent conduct put bondholders in danger of incurring significant additional costs associated with their investments,” said Elaine C. Greenberg, Chief of the SEC Enforcement Division’s Municipal Securities and Public Pensions Unit. “The tax-exempt status of municipal bonds is vitally important to bond investors, and we will closely scrutinize any conduct by issuers or others that threatens that tax exemption.”

Eric I. Bustillo, Director of the SEC’s Miami Regional Office, added, “Municipalities in South Florida and elsewhere cannot rely on a lack of internal procedures or experience in debt offerings to excuse fraudulent disclosures made to investors.”

According to the SEC’s order instituting settled administrative proceedings, South Miami sought financing to develop a public parking garage. The project ultimately became a mixed-use retail and public parking structure to be developed by a for-profit developer. Under the initial lease agreement between the city and the developer, the city was responsible for all construction costs except the retail portion. The city retained full control over the operation and maintenance of the parking garage portion and all parking revenues. The developer’s limited role was critical to the city receiving the benefits of tax-exempt financing. Under IRS regulations, the project could be financed on a tax-exempt basis only if its use by the for-profit developer was kept to a minimum.

According to the SEC’s order, South Miami approved the financing for construction of the tax-exempt portion of the project and moved ahead with its participation in the initial FMLC 2002 bond pool offering. However, upon receiving a copy of the city’s lease agreement with the developer, bond counsel identified a potential tax issue with the mixed public-retail nature of the project. During subsequent conference calls with the city’s then-finance director, bond counsel communicated to city officials that no funds from the bond offering could be used to finance the retail portion of the structure.

However, the SEC found that subsequent city finance directors were unaware of the substance of these discussions or how the lease agreement affected the tax status of the bonds. Moreover, subsequent city finance directors had no previous experience, training, or guidance on disclosure requirement or tax issues in bond offerings. When the lease agreement was revised in 2005 to lease not only the retail space to the developer but the parking garage as well, the updated terms caused the project to be considered private business use, which jeopardized the tax-exempt status of the bonds. South Miami did not inform the FMLC, bond counsel, or any third parties about the project changes. Documents for the second 2006 FMLC bond pool offering contained material misrepresentations and omissions about the use of the offering’s proceeds and the altered terms of the parking garage lease.

According to the SEC’s order, annual certifications made by the city to the FMLC from 2003 to 2009 incorrectly stated that South Miami was in compliance with the terms of the loan agreements, which included representations that no event had occurred affecting the tax-exempt status of the bonds. South Miami eventually filed a material event notice with the Municipal Securities Rulemaking Board’s Electronic Municipal Market Access (EMMA) system in July 2010 that publicly acknowledged a potential adverse impact on the bonds’ tax exemption. Separately, the city settled with the IRS by paying $260,345 and defeasing a portion of the two prior bond offerings at a cost of $1.16 million. Because of the city’s settlement and payments, bondholders were not financially harmed and they’re not required to include any interest from the bonds in their gross incomes.

The SEC’s order directs South Miami to cease and desist from committing or causing any violations of Sections 17(a)(2) and (3) of the Securities Act of 1933. The city must retain an independent third-party consultant, who for three years will conduct annual reviews of the city’s policies, procedures, and practices related to its disclosures for municipal securities offerings. The city must abide by the independent consultant’s determinations and implement all recommendations. South Miami neither admitted nor denied the SEC’s findings. A full description of the undertakings can be found in the SEC’s order.

This SEC’s investigation was conducted in the Miami Regional Office by Senior Counsel Sean M. O’Neill under the supervision of Assistant Regional Director Jason R. Berkowitz, both members of the Municipal Securities and Public Pensions Unit.

Treasuries tumbled with gold and the dollar rallied, while U.S. equities retreated, as concern grew that the Federal Reserve will scale back its stimulus efforts if the labor market continues to improve.

Ten-year Treasury yields jumped 10 basis points to 2.03% at 3:14 p.m. in New York, topping 2% for the first time since March. The Dollar Index rose 0.6% to 84.35, trading near its strongest level since 2010. The Standard & Poor’s 500 Index lost 0.7% at 1,656.79, retreating from a record after climbing as much as 1.1% earlier. Gold futures retreated 1.4% to $1,359.00 an ounce, after rising as much as 2.6%.

U.S. stocks extended gains earlier while gold and Treasuries rallied as Fed Chairman Ben S. Bernanke told Congress that a premature end to its bond buying would put the economic recovery at risk. Treasuries and gold turned lower as Bernanke later told lawmakers that the flow of purchases will slow as the employment outlook “improves in a real and sustainable way.” A number of officials said they were willing to taper stimulus as early as June, minutes from the Fed’s last meeting showed.

“The 2% is the magic thing on the 10 year yield,” Frank Ingarra, head trader at Greenwich, Connecticut-based NorthCoast Asset Management LLC, said in a telephone interview. His firm oversees $1.6 billion. “It’s the threshold so going toward that, people are getting a little worried,” he said. “People are just digesting more of Bernanke’s comments.”

The slide in Treasury prices after Bernanke’s remarks sent the 10-year note’s yield above the S&P 500’s 2% dividend yield for the first time in more than a year, according to data compiled by Bloomberg.

Fed Watch

Bernanke is leading the most aggressive economic stimulus in the Fed’s 100-year history in an effort to spur growth and reduce an unemployment rate that stands at 7.5% almost four years into a recovery from the worst recession since the Great Depression. Policy makers will know in three to four months whether the economy is healthy enough to overcome federal budget cuts and allow the central bank to begin reducing stimulus, Fed Bank of New York President William C. Dudley said in an interview airing today on Bloomberg Television.

Many Fed officials said more progress in the labor market is needed before deciding to slow the pace of asset purchases, according to minutes of their last meeting.

“Most observed that the outlook for the labor market had shown progress” since the-bond buying program began in September, according to the record of the April 30-May 1 gathering released today in Washington. “But many of these participants indicated that continued progress, more confidence in the outlook, or diminished downside risks would be required before slowing the pace of purchases would become appropriate.”

Tim Cook’s tenure at the helm of Apple Inc. has been a crash course in crisis management.

In almost two years since Cook became chief executive officer, Apple has lurched from one reputation-threatening public-relations predicament to the next — from criticism of its labor practices in China, to faulty mapping software that marred the release of the iPhone 5. Most recent case in point: Cook testified yesterday before Congress to defend Apple against allegations that it dodged $9 billion in taxes in 2012.

In two hours of testimony, Cook calmly parried questions from a Senate subcommittee, urged reform of U.S. corporate tax code and even shared a laugh with Senator John McCain about the hassles of iPhone updates. Even so, continually coping with crises threatens to divert management’s attention from building better products and reversing a share slump. The accusation that Apple shifted billions of dollars to offshore affiliates to avoid paying taxes will alienate some consumers, said Jack Ablin, chief investment officer of BMO Private Bank in Chicago.

“There is a reputation risk,” Ablin said. “Being in the news, testifying before Congress and sound bites about avoiding billions of dollars in taxes has the potential to ruffle their customers’ feathers. This issue is on the front page, not the business page.”

That helps explain why Cook went to Washington, D.C., to face questioning by Senator Carl Levin of Michigan and other members of the Senate Permanent Subcommittee on Investigations, which said that Apple relied on loopholes and a web of offshore entities to avoid paying U.S. taxes.

Taxes Paid

“It’s important to tell our story — and I’d like people to hear it from me,” Cook said in testimony. “We pay all the taxes we owe — every single dollar.”

The remarks exemplified how Cook has handled other crises – - quickly and personally — when they crop up for Cupertino, California-based Apple.

“They are happening in every dimension of the business, whether it’s taxes, offshore production or product design,” said Stephen Diamond, a law professor at Santa Clara University who has worked with technology companies and studies corporate governance. “He’s had to dive in personally and manage these.”

While management can shrug off perceived missteps when the going is good — as was often the case under co-founder Steve Jobs — Apple’s leadership has lately had to cope with a stock price that’s declined 37 percent since reaching a record on Sept. 19. The shares are falling amid concern that the company won’t quickly be able to produce a blockbuster gadget that can build on the success of the iPhone and iPad. Apple rose 1.1 percent to $444.32 at 12:35 p.m. in New York.

Hedge funds’ returns have stayed “lackluster” this year, with the $2.3 trillion industry trailing the gains of the Standard & Poor’s 500 Index by about 10 percentage points, according to Goldman Sachs Group Inc.

Hedge funds gained 5.4% on average through May 10, compared with a 15.4% rise for the S&P 500 and a 14.8%  increase for the typical mutual fund, a team of Goldman Sachs analysts led by Amanda Sneider and David Kostin wrote in a report released today.

Hedge-fund managers have been hurt in 2013 by their bearish wagers on stocks, with “popular” shorts such as Johnson & Johnson and Gilead Sciences Inc. rising more than the broader equity market, Goldman Sachs said. Fewer than 5% of the hedge funds tracked by New York-based Goldman Sachs are beating the S&P 500 or a typical mutual fund that buys stocks of the biggest U.S. companies.

A “multi-year trend of lackluster hedge-fund returns continues in 2013,” the analysts wrote. “Strong long performance was not enough to outweigh the drag from popular short positions.”

Hedge funds, which typically charge clients a 2% management fee and 20% of any investment gains, are private pools of capital that can bet on both rising and falling asset prices. From the start of 2009 to the end of April this year, the average fund has risen 21% after fees, compared with a 77% gain for the U.S. benchmark S&P 500, data compiled by Bloomberg shows.

Hedge funds are currently 53% “net long,” the highest percentage since the first quarter of 2007, according to Goldman Sachs. The figure is derived by subtracting bets that stocks will fall from wagers that they will rise.

The stocks hedge funds are most bullish on include American International Group Inc., Google Inc., Apple Inc. and Citigroup Inc., according to Goldman, which analyzed equities that appear most frequently among the top 10 holdings of fund managers.

Stocks hedge funds are most commonly shorting include Johnson & Johnson, Intel Corp., International Business Machines Corp. and Gilead, the Goldman Sachs analysts said. In a short sale, traders borrow shares from a broker and sell them, hoping to buy back the stock at a lower price. They then return the borrowed shares to their broker and pocket the difference.

Bloomberg News

As Chairman Bernanke stated in his highly watched testimony in Washington that the economic recovery would be hurt by early tightening and thus he will keep an accommodative policy for now, global equity markets had sharp rallies, and many foreign currencies continued their slide.

Equities: The JUN13 E-mini S&P 500 rallied quick and hard this morning to 1685 upon the market digesting Bernanke’s testimony. Now the market is up 12.50 points to 1678. We believe the market, so close to 1700 now, will likely approach and possibly hit this 1700 level somewhat soon. Our major target we have been focused on for a while has been 1690, and we are very close to that. The Japanese  Nikkei is on a moonshot ride this month and year, and today is no different. The Nikkei futures are up 470 points to 15980.

Bonds: Even with Bernanke stating that the economy needs accommodative policy, the bonds are down today, with the JUN 10-year futures down 6.5 points to 131’22.5. The market will also be listening closely to the FOMC minutes release later today. It seems as though the overall pressure facing the bond market is indeed bearish, and especially if the stock market continues to march higher, we believe the bond market will head lower.

Currencies: The pound, the yen, and the Aussie are all down big today. Both the Aussie and the pound are down more than 100 ticks, and the yen is down 76 ticks. The U.S. dollar is continuing its rally even in the face of a dovish Bernanke, which is interesting. The euro spiked up to 130, but then immediately came back down and is now down 24 ticks on the day to 128.79. We could see the euro falling much more.

Commodities: Crude oil is down more than $1, while gold spiked up to $1,410, but then came right back down and is now trading at $1,377. We believe gold is headed lower, and anticipate a test of the $1,300 level in the medium term. We believe crude oil is headed lower this year as well, as supply figures seem very high.

Click to enlarge.