Bloomberg News

Hedge Fund Gold Wagers Slump to Lowest Since 2007: Commodities

December 09, 2013

Gold Bars

Gold slumped 27 percent this year, the first drop since 2000 and the biggest in more than three decades, as some investors lost faith in the metal as a store of value after the U.S. economic recovery gained traction. Photographer: Junko Kimura/Bloomberg

Hedge funds are the least bullish on gold since 2007 as signs of faster U.S. economic growth bolster the case for the Federal Reserve to trim stimulus and cut demand for haven assets.

The net-long position in gold fell 16 percent to 26,774 futures and options in the week ended Dec. 3, the lowest since June 2007, U.S. Commodity Futures Trading Commission data show. Short bets rose 6.2 percent to 79,631, within 0.6 percent of the record reached in July. Net-bullish wagers across 18 U.S.-traded commodities climbed to a four-week high. The Standard & Poor’s GSCI gauge of 24 raw materials capped the biggest weekly gain since August as faster economic growth boosted prospects for energy, metals and grains consumption.

Gold is heading for the biggest annual decline in three decades as equities advance and inflation slows. The U.S. unemployment rate reached a five-year low in November and third-quarter economic growth exceeded analyst estimates, government reports showed last week. The share of economists predicting the Fed will taper bond purchases this month doubled after the jobs report Dec. 6. Bullion reached a record in September 2011 as the Fed pumped more than $2 trillion into the financial system.

“Gold is experiencing the flip side of some of the euphoria that it had from 2009 to 2011,” said Sameer Samana, a St. Louis-based strategist at Wells Fargo Advisors LLC, which oversees about $1.3 trillion of assets. “People are experiencing buyers’ remorse as they look for other places to try to store value. Until the market is more concerned about inflation, gold will have a tough time getting traction.”

Gold Bears

Futures in New York reached $1,210.10 an ounce on Dec. 6, within $30.70 of this year’s low reached in June. Sixteen analysts surveyed by Bloomberg News expect gold to fall this week, 11 are bullish and two neutral. The analysts were bearish for a third week, the longest stretch since February 2010.

Bullion tumbled 26 percent this year, heading for the biggest annual slump since 1981. The S&P GSCI gauge of 24 commodities dropped 2.8 percent. The MSCI All-Country World Index of equities gained 18 percent, while the Bloomberg Dollar Index, a gauge against 10 major trading partners, rose 2.9 percent. The Bloomberg Treasury Bond Index fell 2.8 percent.

Global holdings in exchange-traded products backed by bullion tumbled 31 percent this year to the lowest level since February 2010, erasing almost $69 billion from the value of the assets.

Fed Minutes

Minutes of the Fed’s October meeting showed that policy makers expected an improving economy will warrant trimming stimulus in coming months. The central bank will probably begin reducing $85 billion in monthly bond buying at a Dec. 17-18 meeting, according to 34 percent of economists surveyed Dec. 6 by Bloomberg, an increase from 17 percent in a Nov. 8 survey.

European Central Bank President Mario Draghi re-affirmed Dec. 5 that interest rates will stay low for the foreseeable future and the Bank of England held its key interest rate at a record low the same day. Japan is buying about 7 trillion yen ($68 billion) a month of government debt. The Fed has kept its benchmark borrowing cost near zero percent since 2008. Bullion surged 70 percent from the end of 2008 through June 2011 as policy makers took unprecedented measures to boost growth amid most-severe global recession since World War II.

Gold’s 14-day relative-strength index fell last week to near 30, a level that suggests to some analysts using technical charts that the price may be poised to rebound. The RSI gauge was at 39 today.

‘Stable Base’

“A lot of selling has now been done, so you could see a more stable base for the gold price to build on,” said Frances Hudson, who helps manage about $271 billion of assets as the Edinburgh-based strategist at Standard Life Investments. “The reality at the moment is that the U.S. isn’t thinking of moving their interest rates. They’re talking about the possibility of tapering, which is several steps ahead.”

American employers increased payrolls by 203,000 last month, following a revised 200,000 advance in October, Labor Department figures showed Dec. 6. Gross domestic product rose at a 3.6 percent annual rate last quarter, up from an initial estimate of 2.8 percent and the strongest since the first quarter of 2012, the Commerce Department said a day earlier. The U.S. is the world’s top consumer of corn and crude, and builders in the nation put about 400 pounds (181 kilograms) of copper into the average home.

Record Outflows

Investors pulled a record $35.2 billion from commodity funds since the end of December, according to EPFR Global, which started tracking the flows in 2000. The GSCI index, which is heading for the first annual loss since 2008, reached a six-week high Dec. 6.

Bullish bets on crude oil climbed 7.8 percent to 246,661 contracts, the biggest gain since July, the CFTC data show. Fuel demand rose 1.7 percent to 20 million barrels a day in the seven days ended Nov. 29, according to figures from the Energy Information Administration, the U.S. Energy Department’s statistical arm. Consumption was 8.9 percent higher than during the same week a year earlier.

Speculators reduced their net-short bets on copper to 19,316, compared with 19,738 a week earlier, the CFTC said. Stockpiles monitored by the London Metal Exchange have fallen to the lowest since February, while orders to withdraw the metal from warehouses in New Orleans are at a record. U.S. new-home sales jumped more than 25 percent in October, the biggest one-month surge since May 1980, a government report showed Dec. 4.

Farm Bets

A measure of speculative positions across 11 agricultural products slid 1.1 percent to 283,025 contracts, the CFTC data show. Investors trimmed their bearish positions in corn and wheat and got more bullish on soybeans.

U.S. corn and soybean inventories before the 2014 harvests will be smaller than the government predicted in November after overseas demand for crops improved, according to a survey of as many as 31 analysts and trading firms by Bloomberg News. Wheat reserves may also fall.

The net-long position in cocoa climbed 1.7 percent to 78,881 futures and options, the highest in four weeks. Prices in New York jumped 25 percent this year, heading for the biggest annual rally since 2008 as dry weather threatened crops in Ivory Coast and Ghana, the top producers. Stockpiles at facilities tracked by ICE Futures U.S. have fallen 10 percent this year to the lowest since June 2011.

“Next year should be a better year, economically speaking, than 2013,” said John Kinsey, who helps manage about C$1 billion at Caldwell Securities Ltd. in Toronto. “Most of the materials, whether they’re precious metals, or base metals, have been beaten up pretty badly. Any sign of recovery would be a good thing for commodities.”

To contact the reporter on this story: Luzi Ann Javier in New York at ljavier@bloomberg.net

To contact the editor responsible for this story: Millie Munshi at mmunshi@bloomberg.net


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