Bullish Futures Top 1 Million Contracts for First Time in ’12: Commodities
Bullish commodities futures rose above 1 million contracts for the first time in five months as U.S. growth prospects improved and Goldman Sachs Group Inc. predicted further price gains.
Hedge funds and money managers boosted combined net-long positions across 18 U.S. futures and options by 7.3 percent to 1.03 million contracts in the week ended Feb. 21, Commodity Futures Trading Commission data show. That’s the highest since Sept. 13. Bullish wagers on gold climbed to a five-month high, and bets on crude oil rose to the most since May.
The Standard & Poor’s GSCI Spot Index of 24 commodities capped its biggest weekly increase of the year last week, touching a nine-month high on Feb. 24. U.S. consumer confidence rose more than forecast in February, and new-home sales topped estimates. Goldman reiterated an “overweight” recommendation on raw materials on Feb. 22.
“The U.S. is showing better signs of self-sustaining economic activity,” said Michael Strauss, who helps oversee about $27 billion of assets as chief investment strategist at Commonfund in Wilton, Connecticut. “What we see is reasonable global growth this year, which should be supportive of gains in overall commodities.”
Stocks and commodities advanced after euro-area finance ministers approved 130 billion euros ($175 billion) in aid for Greece last week to avert a default. China, the world’s biggest consumer of everything from pork to soybeans, said Feb. 18 that it will cut reserve requirements for banks to spur growth. German business confidence rose more than economists forecast to a seven-month high in February, the Munich-based Ifo institute said on Feb. 23.
The S&P GSCI gauge climbed 3.9 percent last week, the biggest gain since Dec. 23. The MSCI index of equities rallied 0.9 percent, with about $557.7 billion added to the value of global stocks. The yield on 10-year Treasuries rose 2.6 basis points, or 0.026 percentage point, to 1.98 percent, according to Bloomberg Bond Trader prices.
Fifteen of the raw materials tracked by the S&P GSCI climbed last week, led by gains in industrial metals. Lead surged 8 percent, aluminum advanced 7.5 percent, and zinc rose 6.9 percent. The gauge fell 0.5 percent to close at 711.62 in New York.
The number of contracts outstanding across the 24 commodities tracked by S&P rose 1 percent last week, boosting this year’s increase to 14 percent, exchange data show. Funds have lifted wagers for five straight weeks, the longest stretch since December 2010, CFTC data show.
Investors added $571 million to commodity funds in the week ended Feb. 22, according to data from Cambridge, Massachusetts- based EPFR Global, which tracks money flows. Gold and precious- metals inflows totaled $210 million, said Cameron Brandt, the director of research.
“The latest commodity flow numbers is catch-up with previous positive trends,” Brandt said. “People are moving into them based on a string of relatively positive numbers. Whether those will continue to carry weight is a little more questionable.”
While Goldman forecasts more gains, the bank lowered its 12-month prediction for commodity returns to 12 percent from 15 percent after prices rallied, analysts led Jeffrey Currie said in a report on Feb. 22.
Economy at Risk
Crude oil exceeded $109 a barrel for the first time in almost 10 months on Feb. 24. Higher energy costs may put the U.S. recovery at risk, David Rosenberg, the chief economist at Gluskin Sheff & Associates Inc., said last week in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt.
The U.S. will probably grow 2.2 percent this year, up from 1.7 percent in 2011, according to the median of 79 economist estimates compiled by Bloomberg. Applications for jobless benefits in the week ended Feb. 18 held at a four-year low, Labor Department figures showed on Feb. 23.
Money managers lifted their bullish crude bets by 11 percent to 259,162 contracts, the CFTC data show. That’s the highest since May 3. Futures for April delivery dropped 1.1 percent to settle at $108.56 on the New York Mercantile Exchange today.
Bullish gold wagers climbed 9.9 percent to 179,132 contracts, the highest since Sept. 13, the government said. Holdings in exchange-traded funds backed by the metal rose to a record 2,396.9 metric tons on Feb. 24, data compiled by Bloomberg show.
A measure of 11 U.S. farm goods showed speculators increased bullish wagers by 6.6 percent to 483,576, the highest since the week ended Nov. 8. Soybean holdings rose 20 percent to 96,971, the third straight gain and the highest since Sept. 20. Bets on rising cattle prices advanced 11 percent to 97,506 contracts, a 14-week high.
U.S. soybean inventories before the 2013 harvest may drop 25 percent as exports climb to a record, the Department of Agriculture said in a report on Feb. 24.
Cattle futures extended a rally to an all-time high of $1.315 a pound on Feb. 22 in Chicago. U.S. feedlots trimmed purchases of young cattle more than forecast last month as fewer animals were available for sale because of a shrinking herd, the government said Feb. 24.
“Investors are feeling better about the economy,” said Steve Shafer, the chief investment officer at Oklahoma City- based Covenant Global Investors, which has about $315 million in assets under management. “You’ve got supply constraints with a rising appetite. That creates a supply-demand gap that results in higher prices.”
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