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Dec. 27 (Bloomberg) -- Hedge funds reduced bets on higher commodity prices to the lowest level since 2009 just as raw materials headed for their biggest weekly rally in two months.
Money managers cut their combined net-long position across 18 U.S. futures and options by 15 percent to 454,512 contracts in the week ended Dec. 20, the lowest since March 2009, data from the Commodity Futures Trading Commission show. The Standard & Poor’s GSCI gauge of 24 commodities climbed 4.5 percent last week, erasing this year’s declines and pushing the index toward its third consecutive annual advance.
While the S&P GSCI is 15 percent below the 32-month high reached in April, prices gained last week on signs the U.S. economy is proving resilient. Durable-goods orders rose in November by the most in four months, and jobless claims unexpectedly fell to the lowest in more than three years. Concern that shortages will emerge in commodities from copper to crude oil spurred Goldman Sachs Group Inc. to stick with a bullish outlook this month even as funds cut their holdings.
“Commodities are in the process of bottoming,” said James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees about $340 billion of assets. “You’re going to find out that the U.S. economy is going to continue to grow much faster than people thought. You’re going to see people coming back to commodities.”
Last week’s gain in the S&P GSCI was the biggest since Oct. 14 and left the gauge up 2.2 percent in 2011. It rose 20 percent in 2010 and 50 percent a year earlier. The MSCI All-Country World Index of equities climbed 3.1 percent last week, paring this year’s decline to 9.3 percent. The U.S. Dollar Index, a measure against six trading partners, dropped 0.4 percent. The yield on 10-year Treasuries climbed 18 basis points, or 0.18 percentage point, to 2.02 percent, Bloomberg Bond Trader prices show.
Twenty of the 24 raw materials tracked by the S&P GSCI rose last week. Gasoline surged 8 percent to $2.6872 a gallon. Wheat capped six consecutive daily advances, the longest winning streak since January. Oil added 6.6 percent, the biggest weekly gain since October. The commodity gauge climbed as much as 1.4 percent today.
Commodities will return 15 percent in the next 12 months, led by industrial metals and energy, because the global economy is likely to avoid another recession, Goldman said in a report Dec. 1. That’s still the bank’s view, Sophie Bullock, a London- based spokeswoman for the bank, said in an e-mail Dec. 15.
U.S. bookings for equipment meant to last at least three years rose 3.8 percent after no change in the prior month, a period that was previously reported as a contraction, data from the Commerce Department showed on Dec. 23. Sales of new U.S. homes rose in November to a seven-month high, the department said the same day.
The S&P GSCI is still headed for a 0.7 percent monthly decline after Europe’s debt crisis escalated. Funds are net- short, or betting on price declines, in copper, cocoa, soybean meal, wheat, soybean oil and natural gas, CFTC data show. Crude- oil holdings fell 11 percent to the lowest since Oct. 18, and net-long positions in gold dropped 13 percent to the lowest since April 2009.
European Central Bank President Mario Draghi said Dec. 19 that lenders in the euro region will experience “very significant” funding constraints next year and there are “substantial downside risks” to the economy. The Dollar Index rallied 2 percent this quarter as investors sold other assets for the perceived safety of the currency. The gauge declined in six of the past nine years and is 31 percent lower than at the start of that period.
“Going into 2012, there’s a very, very high probability that we can see some fairly hefty declines in the commodity markets,” said Stephen Hammers, the Nashville, Tennessee-based chief investment officer at Compass EMP Alternative Strategies Fund, which has about $500 million of assets. “There’s a tremendous amount of uncertainty about what is going to happen around the world in terms of the global economy.”
Pacific Investment Management Co., the world’s largest bond fund, said the U.S. may stagnate next year. Europe may contract and Chinese growth may slow, Saumil H. Parikh, who leads Newport Beach, California-based Pimco’s cyclical economic forums, said in a report posted on its website on Dec. 22.
The economy in China, the biggest consumer of everything from nickel to soybeans, may expand 8.5 percent next year, down from 9.2 percent this year and 10.4 percent in 2010, according to the median of 19 economist estimates compiled by Bloomberg.
Investors pulled $490 million from commodities funds in the week ended Dec. 21, according to data from Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Gold and precious-metals outflows totaled $1.59 billion, and non- precious-metal commodities had net inflows of more than $1 billion, said Cameron Brandt, the director of research.
“Commodities, ex-gold, had one of their better weeks,” Brandt said. “We are seeing some more durable faith in the U.S. recovery at the moment.”
Confidence among U.S. consumers climbed more than forecast in December, to a six-month high, according to the Thomson Reuters/University of Michigan sentiment index. The increase to 69.9 from 55.7 in August is the biggest four-month increase since the period ended June 2009.
Builders broke ground in November on more U.S. houses than at any time in the past 19 months, led by a surge in multifamily units, the Commerce Department said Dec. 20.
China Copper Imports
Refined-copper imports by China climbed to the highest since June 2009 last month, the General Administration of Customs said Dec. 21. Global oil demand will rise 1.4 percent next year, with China accounting for more than a 10th of the total, according to the Paris-based International Energy Agency.
A measure of 11 U.S. farm goods showed speculators cut bullish bets in agricultural commodities by 7.9 percent to 202,544 contracts, the lowest since March 17, 2009. Investors trimmed bullish bets on coffee by 48 percent to 2,954 contracts, the lowest since Aug. 9.
“People are focusing too much on the day to day in Europe,” said Michael Cuggino, who helps manage about $15 billion of assets at Permanent Portfolio Funds in San Francisco. “There’s an overall environment that remains favorably biased towards an increase in commodity prices heading into 2012.”
--With assistance from Mark Shenk in New York. Editors: Millie Munshi, Patrick McKiernan
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