Speculators increased wagers on commodities for an eighth consecutive week, the longest streak on record, just before a report on U.S. job growth sparked the biggest price rally in a month.
Hedge funds raised their net-long positions across 18 U.S. futures and options by 4.9 percent to 1.22 million contracts in the week to July 31, the highest since Sept. 6, U.S. Commodity Futures Trading Commission data show. Bets more than doubled since reaching this year’s low on June 5, capping the longest increase since the data began in June 2006. Gold holdings climbed by the most since November 2008, and cocoa wagers reached a one-year high.
Commodities rose 2.7 percent on Aug. 3, the most in a month, as the Labor Department said jobs at carmakers and healthcare providers boosted employment. U.S. service industries that make up almost 90 percent of the world’s largest economy expanded at a faster pace in July. Contracts outstanding in raw materials climbed last month for the first time since April as investors speculated growth may accelerate and boost demand for everything from cotton to pork to zinc.
“The U.S. may be exiting its soft patch, and that could certainly bring a bid back into commodities,” said James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees about $320 billion of assets. “With better economic momentum, and with the drop of the dollar, there might be more evidence of a more sustainable force that continues” to boost prices, he said.
The Standard & Poor’s GSCI Spot Index rose 0.9 percent last week, and reached a two-week high Aug. 3. The MSCI All-Country World Index of equities advanced 0.8 percent and the dollar slipped 0.4 percent against a measure of six trading partners. Treasuries lost 0.1 percent, according to a Bank of America Corp. index. The GSCI climbed 0.4 percent to settle at 650.34 in New York.
Thirteen of the 24 commodities tracked by S&P rose last week, led by cotton and cocoa. Corn reached an all-time high of $8.205 a bushel on July 31 as the worst Midwest drought since 1956 wilted U.S. crops.
U.S. payrolls rose by 163,000 last month, following a revised 64,000 gain in June, the Labor Department said Aug. 3. Economists surveyed by Bloomberg had forecast an increase of 100,000. The Institute for Supply Management’s index of U.S. non-manufacturing businesses jumped to 52.6 in July, also beating estimates.
The number of contracts outstanding across the 24 members of the S&P GSCI rose 0.3 percent in July, the first increase since April, according to data compiled by Bloomberg. Inflows to raw-material funds totaled $564 million in the week ended Aug. 1, snapping a five-week streak of outflows, according to EPFR Global, which tracks the funds.
Fed Chairman Ben S. Bernanke failed to deliver on the speculation, saying Aug. 1 he “will provide additional accommodation as needed,” without specifying a plan. A day later, ECB President Mario Draghi left the benchmark interest rate unchanged, having promised July 26 to do whatever it takes to preserve the euro.
“Without the central bank intervention, and a still sluggish economy, commodities should be weaker,” said Anthony Valeri, a market strategist in San Diego at LPL Financial, which oversees $350 billion of assets.
American manufacturing unexpectedly contracted in July for a second month, the Institute for Supply Management said Aug. 1. China’s non-manufacturing industries expanded at a slower pace last month, government data showed Aug. 3. Economic confidence in the euro area fell more than economists forecast to the lowest in almost three years in July, the European Commission said July 30.
The U.S. is the world’s biggest oil and corn consumer, and China is the top user of metals, soybeans and cotton. Europe consumes 18 percent of the world’s copper and accounts for 22 percent of oil demand, data from Barclays Plc and BP Plc show.
Even as American payrolls rose last month, the unemployment rate increased to a five-month high of 8.3 percent from 8.2 percent in June, the Labor Department data showed. The report leaves the U.S. in a “sweet spot” as it signals recovery while leaving room for the Fed to step up stimulus efforts, according to Samarjit Shankar, a managing director for the foreign- exchange group in Boston at Bank of New York Mellon.
“With continued economic stimulus from central banks globally, it still does maintain the possibility of inflation,” said Christopher Burton, a fund manager at Credit Suisse Asset Management in New York who helps oversee $10.7 billion in commodity related assets. “When there is unexpected inflation, that could be a good period for commodities.”
The S&P GSCI surged 92 percent from the end of December 2008 through June 2011 as the Fed kept interest rates near zero and bought $2.3 trillion in government and housing debt.
Investors increased bullish gold bets by 35 percent to 96,200 contracts in the week ended July 31, the CFTC data show. That’s the biggest advance since Nov. 25, 2008. JPMorgan Chase & Co., the biggest U.S. bank by assets, told investors to buy gold in a report Aug. 3, forecasting an average of $1,725 an ounce in the fourth quarter. Futures closed at $1,609.30 that day.
A measure of 11 U.S. farm goods showed speculators increased bullish bets in agricultural commodities by 3.3 percent to 884,477 contracts, the most since Sept. 6, 2011.
Money managers raised corn holdings for an eighth consecutive week to 285,385 contracts, the longest increase since September 2010, CFTC data show. Soybean wagers climbed for the seventh time in eight weeks.
Corn surged 59 percent since June 15 and soybeans are up 21 percent as the worst drought since 1956 sears millions of acres of U.S. cropland and pasture. Dry conditions are expected to persist through October and spread in parts of North Dakota and Texas, the U.S. Climate Prediction Center predicts. Trading of agricultural futures and options averaged 1.384 million contracts a day last month, from 951,000 in July 2011, according to CME Group Inc., the world’s largest futures market.
“Talk and speculation about monetary easing coming over the next few months will continue to put a wind behind commodities,” said Walter “Bucky” Hellwig, who helps manage $17 billion of assets at BB&T Wealth Management in Birmingham, Alabama. “Fundamentals are favoring the agricultural pack. In the near term, we will see commodities rise.”
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