Speculators got the most bullish on commodities since October, buying more gold, cotton and soybeans, before prices fell the most in six weeks on signs of surplus supply.
The net-long position across 18 U.S.-traded commodities rose 8.9 percent to 677,505 futures and options in the week ended Dec. 10, the highest since Oct. 29, U.S. Commodity Futures Trading Commission data show. Gold wagers rose for the first time in six weeks. The Standard & Poor’s GSCI gauge of 24 raw materials fell 1.3 percent last week, the most since Nov. 1.
The S&P GSCI gauge is heading for the first annual decline since 2008 after ample rainfall boosted harvests and mines expanded output. U.S. fuel inventories jumped the most in 11 months in the week ended Dec. 6, government data show. World production of coffee, corn, wheat and soybeans will be bigger than estimated, the U.S. Department of Agriculture said.
“The trend on commodities is negative, and it would appear to me that the longer you wait to buy commodities, the better off you’ll be,” said Jack Ablin, the chief investment officer at BMO Private Bank in Chicago, who helps manage $66 billion of assets. “In a world of supply and demand that sets prices, this excess supply is going to be another headwind.”
The S&P GSCI dropped 3 percent this year, led by declines in corn, silver and gold. The MSCI All-Country World Index of equities gained 16 percent and the Bloomberg Dollar Index, a gauge against 10 major trading partners, rose 3 percent. The Bloomberg Treasury Bond Index lost 2.8 percent.
Investors pulled a record $36.3 billion from commodity funds this year through Dec. 12, according to EPFR Global, which started tracking flows in 2000. Corn is on pace for the worst yearly rout since at least 1960 after the U.S. government estimated domestic production at an all-time high. Gold is heading for the biggest annual slump since 1981 after some investors lost faith in precious metals as a store of value.
Commodities also fell on mounting speculation the Federal Reserve will start trimming its $85 billion in monthly bond purchases as the economy improves. The Fed may begin reducing its debt buying at its Dec. 17-18 meeting, according to 34 percent of economists in a Dec. 6 Bloomberg survey, up from 17 percent in a Nov. 8 poll.
The S&P GSCI surged almost 80 percent since the end of 2008 as Fed policy makers bought debt and kept borrowing costs near zero percent to boost growth amid the most-severe global recession since World War II.
The signs of improving economic growth that are driving speculation of Fed tapering will also boost demand for commodities, said Peter Jankovskis, who helps oversee $3.5 billion as co-chief investment officer of Lisle, Illinois-based OakBrook Investments LLC.
U.S. retail sales climbed the most in five months in November, Commerce Department data showed Dec. 12. Germany’s Bundesbank raised its growth forecasts for Europe’s largest economy on Dec. 6 as domestic spending improved. China’s trade surplus widened last month to $33.8 billion, the most in more than four years, customs data showed two days later. The Asian nation is the biggest consumer of commodities from aluminum to cotton to soybeans.
“In relationship to industrial commodities, any type of global growth that looks to be re-accelerating would bode well for that asset class,” said Chad Morganlander, a Florham Park, New Jersey-based fund manager at Stifel Nicolaus & Co., which oversees about $150 billion of assets. “We’re starting to see the beginning stages of that. In particular, eyes are on an improving European economy and perhaps a stabilization in Chinese growth rates.”
The net-long position in gold climbed 25 percent to 33,449 futures and options, the CFTC data show. Short bets, which slid 6.7 percent to 74,312, are still within about 7 percent of the record reached in July. Prices dropped 26 percent this year.
Investors are dumping gold-backed exchange-traded products at the fastest pace since the securities were created a decade ago. Bullion held in global ETPs slumped 31 percent this year to the lowest since November 2009, wiping $69.5 billion from the value of the assets. An additional 311 tons will be withdrawn next year, according to the median of 11 analyst estimates compiled by Bloomberg.
Bullish bets on crude oil climbed 2.2 percent to 252,199 contracts. West Texas Intermediate fell 1.1 percent to $96.60 a barrel in New York last week, the eighth decline in 10 weeks. Gasoline stockpiles jumped 3.2 percent in the week to Dec. 6, the most since January, according to the U.S. Energy Department.
Speculators reduced their net-short bets on copper to 1,223 contracts, compared with 19,316 a week earlier, the CFTC said. The funds have been betting on lower prices for five weeks, the longest bearish streak since August. Inventories monitored by the London Metal Exchange were 46 percent higher than a year ago.
A measure of speculative positions across 11 agricultural products slid 5.5 percent to 267,581 contracts, the CFTC data show. Investors are holding a record short wager on wheat and are also betting on declines for corn, coffee and soybean oil.
World coffee production will climb to 150.5 million bags in the 2013-2014 season, the U.S Department of Agriculture’s Foreign Agricultural Service said Dec. 13. That’s up from a June forecast of 146.3 million. A bag weighs 60 kilograms, or 132 pounds.
Investors are holding a net-short position in wheat of 69,461 contracts, the most since the data begins in June 2006. Prices in Chicago reached an 18-month low today.
Global wheat inventories before the start of the Northern Hemisphere harvests in 2014 will be 182.78 million metric tons, compared with the 178.48 million tons predicted in November, the USDA said Dec. 10.
“The Fed has pumped all this money into the economy this year, and commodity prices have stayed down,” said Donald Selkin, who helps manage about $3 billion as the New York-based chief market strategist at National Securities Corp. “So what’s going to happen once they start tapering? Supplies are more than adequate. The outlook doesn’t look very promising for next year, because if commodities fell when all this money was being pumped in, I don’t see what’s going to make them go up.”
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