Bloomberg News

Funds Boost Bullish Commodity Bets on Stimulus Plans Outlook

September 12, 2011

(Updates gold prices in eighth paragraph.)

Sept. 12 (Bloomberg) -- Funds increased bullish bets on raw materials for a fourth straight week, the longest series of gains this year, on speculation that economic-stimulus programs will lift demand for metals, grains and energy.

In the week ended Sept. 6, speculators raised their net- long positions in 18 commodities by 0.2 percent to 1.28 million futures and options contracts, government data compiled by Bloomberg show. That’s the highest level since June 14. Funds became bullish on copper for the first time in three weeks, and wagers on a gold rally increased for the first time since early August.

Last week, Federal Reserve Chairman Ben S. Bernanke said policy makers this month will discuss tools they may use to help the recovery, and President Barack Obama proposed a $447 billion plan to spur job growth. The Standard & Poor’s GSCI Index of 24 commodities has surged 23 percent in the past year as the Fed kept U.S. borrowing costs near zero percent and bought Treasuries in a bid to stimulate growth.

“The printing presses of various governments running overtime is likely to keep the commodity markets hot and volatile for quite some time,” Philip Gotthelf, the president of Equidex Brokerage Group Inc. in Closter, New Jersey, said in a phone interview on Sept. 9.

Investors poured $240 million into commodity funds in the week ended Sept. 7, the first inflow in four weeks, according to EPFR Global, a Cambridge, Massachusetts-based research company.

‘Move Into Gold’

“It was more a move into gold and precious metals,” Cameron Brandt, EPFR’s director of research, said in a phone interview on Sept. 9. “The train of thought is the Federal Reserve is probably going to move again on some kind of stimulus program that’s going to weaken the dollar” and boost demand for gold as an alternative asset, he said.

Speculators increased net-long positions in gold by 1.3 percent to 197,844 contracts, the first gain since Aug. 2, data from the U.S. Commodity and Futures Trading Commission showed. Bullish silver bets jumped 6.9 percent to 28,256 contracts.

Gold futures, which surged to a record $1,923.70 an ounce on Sept. 6, are up 29 percent this year as escalating debt woes in Europe and the U.S. boosted demand for a haven. December- delivery bullion in New York shed as much as 1.7 percent to $1,827.60 an ounce before trading at $1,837 as of 10:39 a.m. local time.

“The move that we’ve seen higher in gold is really all about what’s going on in Europe,” Nic Johnson, who helps manage about $30 billion in commodities at Pacific Investment Management Co. in Newport Beach, California, said in a phone interview on Sept. 9.

Greece Crisis

The MSCI All-Country World Index fell 3.4 percent last week on speculation that Greece’s debt crisis could worsen. German Chancellor Angela Merkel’s government is preparing plans to shore up banks in the event that Greece fails to meet the terms of its aid package and defaults, three coalition officials said.

“The macro monetary policy and market conditions continue to make gold attractive,” Michael Cuggino, who helps manage about $15 billion at Permanent Portfolio Funds in San Francisco, said in a phone interview on Sept. 9. “We’re still believers, long term, in the use of commodities as a significant asset class. If you believe in the worldwide growth story, I think that long term it’s a positive.”

--With assistance from Chanyaporn Chanjaroen in Singapore. Editors: Millie Munshi, Patrick McKiernan

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

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


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