Bloomberg News

Speculators Cut Bullish Bets on Fiscal Cliff Talks: Commodities

December 10, 2012

Speculators Cut Bullish Bets as U.S. Talks Stall

Wheat bets fell for the second time in three weeks. Photographer: Simon Dawson/Bloomberg

Investors cut bullish commodity bets for the first time in three weeks as U.S. lawmakers appeared no closer to an agreement to avert more than $600 billion in automatic tax increases and spending cuts and Europe cut its growth outlook.

Speculators and money managers decreased net-long positions across 18 U.S. futures and options by 3.4 percent to 898,380 contracts in the week ended Dec. 4, U.S. Commodity Futures Trading Commission data show. Gold holdings fell 25 percent, the biggest drop since March, as Goldman Sachs Group Inc. said the longest winning streak in at least nine decades will peak next year. Wheat bets fell for the second time in three weeks.

The Standard & Poor’s GSCI Spot Index of 24 raw materials tumbled 2.6 percent last week, the most since September. U.S. House Speaker John Boehner said Dec. 7 that it had been a “wasted week” in talks with President Barack Obama to avoid the so-called fiscal cliff. The European Central Bank said a day earlier that it’s now expecting a contraction instead of growth next year, and President Mario Draghi said the region won’t start to emerge from the slump until the second half of 2013.

“There’s an overriding fear of the fiscal cliff,” said Jeffrey Sica, who helps oversee more than $1 billion of assets as the president and chief investment officer at Sica Wealth Management LLC in Morristown, New Jersey. “One of the main causes for the sell-off is we have this incredible discrepancy regarding growth in general. Not only growth in the U.S., but also growth in Europe and Asia.”

2012 Loss

The S&P GSCI fell 2.1 percent this year, heading for the first annual loss since 2008. The MSCI All-Country World Index of equities jumped 12 percent, and the dollar gained 0.2 percent against a basket of six major trading partners. As of Dec. 7, Treasuries returned 2.6 percent, a Bank of America Corp. index shows.

Confidence among U.S. consumers fell more than forecast in December to a four-month low as the looming fiscal cliff damped optimism and Americans grew concerned that taxes will increase next year, a Thomson Reuters/University of Michigan index showed Dec. 7. The Congressional Budget Office says the U.S. will probably tumble back into a recession should lawmakers fail to resolve their standoff.

The ECB said Dec. 6 the 17-nation euro area’s economy will shrink 0.5 percent this year, more than the 0.4 percent contraction it predicted in September. The bank cut its 2013 forecast to a contraction of 0.3 percent from 0.5 percent growth. German industrial production unexpectedly dropped in October, the Economy Ministry said Dec. 7.

Stimulus Efforts

Central bank stimulus will help revive growth and demand for raw materials, said Dan Denbow, a fund manager at the $2.1 billion USAA Precious Metals & Minerals Fund in San Antonio.

Federal Reserve policy makers may consider additional stimulus measures when they meet Dec. 11-12. In September, the bank pledged to buy $40 billion in monthly mortgage debt in a third round of bond purchases aimed at reducing unemployment and stimulating growth. U.S. payrolls rose more than anticipated in November, and the jobless rate fell to an almost four-year low, the Labor Department said Dec. 7.

Progress may be made on averting the fiscal cliff. Obama and Boehner met yesterday at the White House to discuss the dispute, representatives of both said. No details of the conversation would be provided “but the lines of communication remain open,” they said.

Goldman Sachs said investors should be “overweight” in commodities because prices will gain 7 percent in 12 months on improving global economic growth. Rising consumption may limit immediate supplies and raise near-term prices above longer-dated contracts, New York-based Jeffrey Currie, the bank’s head of commodity research, said in a report Dec. 5.

‘Printing Presses’

“Globally, we’re going to have to keep the printing presses running, and that’s going to lead to the devaluation of global currencies,” Denbow said. “That’s going to be supportive of gold prices” and commodities in general, he said.

Money managers added a net $388.14 million to commodity funds in the week ended Dec. 5, according to Brad Durham, a managing director for Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Gold and precious-metal funds inflows totaled $542.8 million.

Heating Oil

Wagers on a heating-oil rally fell 7.8 percent to 21,435 contracts, the CFTC data show. That’s the seventh straight week of declines, the longest streak since June. This year will probably overtake 1998 to become the warmest year on record in the U.S., the National Oceanic and Atmospheric Administration said in its monthly climate report Dec. 6.

Bets on higher crude-oil prices surged 12 percent to the highest since October. Prices fell 3.4 percent last week in New York trading. The funds switched to betting on a decline in natural gas prices for the first time in three weeks.

Bullish gold holdings dropped to 126,073 contracts, the lowest since Aug. 21. Goldman lowered its 12-month estimate by 7.2 percent to $1,800 an ounce on Dec. 5 and said the metal would average $1,750 in 2014. Gold for immediate delivery closed at $1,704.05 on Dec. 7, and rose 0.5 percent to $1,712.95 today. Fourteen of 31 analysts surveyed by Bloomberg expect prices to rise this week, 10 were bearish and seven were neutral, making the proportion of bulls the lowest since Oct. 19.

A measure of net-longs for 11 U.S. farm goods rose 10 percent to 535,463 contracts, the CFTC data show. Investors became bullish on cotton for the first time in five weeks, holding 650 net-long bets compared with a net-short wager of 9,862 contracts a week earlier.

Wheat Holdings

Wheat holdings dropped 20 percent to 34,429 contracts and are down 57 percent from this year’s peak in August. From June 1 to Nov. 29, U.S. exporters shipped 12.1 million metric tons, 12 percent less than a year earlier, government data show.

“Aggregate demand for raw materials is bad, and that’s why we’re seeing a backwash” in prices, said Stanley Crouch, who helps oversee $2 billion as chief investment officer at New York-based Aegis Capital Corp. “The whole world is based on consumption, and now consumption has been artificially enhanced.”

To contact the reporter on this story: Tony C. Dreibus in Chicago at tdreibus@bloomberg.net

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


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