Bloomberg News

Funds Raise Bullish Commodity Bets as Silver Holdings Jump

August 01, 2011

(Updates with gold prices in fifth paragraph.)

Aug. 1 (Bloomberg) -- Funds lifted bets on rising commodity prices to a six-week high after traders snapped up raw materials as alternative assets amid the escalating U.S. debt crisis.

Speculators raised their net-long position in 18 commodities by 10,063 futures and options contracts to 1.27 million in the week ended July 26, government data compiled by Bloomberg show. That’s the highest since June 14. Silver holdings rose for a fourth straight week, and bullish sugar bets climbed to the highest since February 2010.

The Standard & Poor’s GSCI Spot Index climbed 2.6 percent in July, ending two months of declines. The S&P 500 Index dropped more than 2 percent last month on concern that the U.S. economy will falter as lawmakers remained deadlocked on raising the debt ceiling before a default deadline.

“Investors in many disciplines have been investing commodities and precious metals of late in response to loose and accommodative monetary policy around the world as well as uncertainty surrounding debt and budgetary issues both in Europe and the United States,” Michael Cuggino, who helps manage about $14 billion at Permanent Portfolio Funds in San Francisco, said in a telephone interview.

Gold for immediate delivery reached an all-time high of $1,632.80 on July 29, advancing 8.5 percent last month on concern among investors that sovereign-debt crises in the U.S. and Europe may derail the global economic recovery. Copper in London gained to a more than three-month high of $9,895 a metric ton on the same day.

Silver, Oil

Investors put $570 million into commodity funds in the week ended July 27, the fourth consecutive increase, and year-to-date inflows totaled $11.05 billion, Cameron Brandt, director of research at Cambridge, Massachusetts-based EPFR Global, said in a telephone interview.

Hedge funds and other money managers boosted their silver net-long position by 11 percent to 27,492 contracts, data from the U.S. Commodity Futures Trading Commission showed. The four weeks of gains was the longest string of increases since February. Bullish crude-oil holdings rose to a six-week high.

“If you look at oil, you’ve got tremendous growth in emerging markets,” boosting demand, said Nic Johnson, who helps manage about $30 billion in commodities at Pacific Investment Management Co. in Newport Beach, California.

Still, interest in commodities may be waning, Johnson said in a telephone interview. In the week ended July 26, commodity net-longs were up 0.8 percent. In each of the prior two weeks, bets jumped about 15 percent.

“People look at the outlook for commodities on a secular basis, and it’s still pretty strong,” Johnson said. “You could have near-term pullbacks from weak growth. You’re at the high end of the recent range for most commodities. That has tempered a lot of people’s enthusiasm.”

Speculators reduced their gold net-long position by 2.1 percent to 233,256 futures and options contracts. That was the biggest decline since June 28. Prices touched a record $1,637.50 an ounce on the Comex in New York last week.

--Editors: Millie Munshi, Steve Stroth

To contact the reporter on this story: Elizabeth Campbell in Chicago at ecampbell14@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net


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