NEW YORK (Reuters) - Goldman Sachs Group Inc (>> Goldman Sachs Group Inc) stuck with commodities trading while rivals have pulled back, and on Friday the bank felt vindicated.

While Goldman does not disclose revenue for commodities trading specifically, Chief Financial Officer Harvey Schwartz highlighted it as a bright spot in the bank's broader fixed-income trading business, which had a rough quarter.

"Over the last couple years we've often been asked the question: It seems like everybody else is getting out of the commodity business. How come you aren't getting out of the commodity business?" said Schwartz.

Other banks, including JPMorgan Chase & Co (>> JPMorgan Chase & Co.), Morgan Stanley (>> Morgan Stanley) and Deutsche Bank, (>> Deutsche Bank AG) pulled back from commodities trading, deciding to sell large chunks of their operations in part because of political pressure.

The Federal Reserve and an investigatory panel in Congress have examined Wall Street banks' role in trading of physical commodities - actual barrels of oil instead of futures linked to the price oil. Fed officials have expressed concerns that commodities-linked risks, such as oil spills by tankers leased by banks, pose threats to the financial system. Some lawmakers have accused banks, including Goldman, of driving up commodity prices for consumers and businesses for its own profits.

Goldman has said its activities are not unduly risky. The bank has won more business from clients as rivals pulled back, Schwartz said, because it viewed commodities hedging as a critical service for customers, and a good way to win underwriting and merger advisory business.

Not all analysts are convinced that Goldman's commitment to commodities makes sense.

"If you're depending on 50 percent decline in major commodity to have differentiated results, that's problematic," said Brian Kleinhanzl, a KBW analyst who covers Wall Street banks. "Commodities helped them a little bit, but the big question is: Is that the incremental revenue that you're getting worth the regulatory scrutiny?"

He noted that Goldman could decide to be much bigger in an area that delivers at least as much revenue - like municipal bond trading, where Bank of America Corp (>> Bank of America Corp) and Citigroup Inc (>> Citigroup Inc) reported strong results - without the same public scrutiny.

Morgan Stanley, once viewed as Goldman's biggest rival in commodities trading, will report its earnings on Tuesday. Analysts expect the bank to provide an update of its effort to sell a physical oil trading business after a deal with the Russian oil firm Rosneft collapsed last year.

(Reporting by Lauren Tara LaCapra; editing by Dan Wilchins and Gunna Dickson)

By Lauren Tara LaCapra