Hedge Funds Cut Gold Bets to 11-Week Low on U.S. Growth

Photographer: Gianluca Colla/Bloomberg

A freshly cast 400 ounce gold bar sits on a workbench at a precious metal refinery near Mendrisio, Switzerland. The metal jumped 70 percent from December 2008 to June 2011 as the Fed bought debt and cut interest rates to a record in a bid to boost the economy. Close

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Photographer: Gianluca Colla/Bloomberg

A freshly cast 400 ounce gold bar sits on a workbench at a precious metal refinery near Mendrisio, Switzerland. The metal jumped 70 percent from December 2008 to June 2011 as the Fed bought debt and cut interest rates to a record in a bid to boost the economy.

Speculators are the least bullish on gold in 2 1/2 months on mounting confidence that U.S. economic growth is accelerating out of its winter retreat.

Money managers cut their net-long position in bullion to the smallest since mid-February during the week ended April 29. Wagers tumbled 25 percent last month, the most since November, and investors cut their holdings in exchange-traded products backed by the metal to the lowest since 2009.

Futures fell 5.7 percent from a six-month high in March as the American economy bounces back from the harshest winter in three decades. Hiring in the U.S. rose in April by the most since January 2012, while household purchases in March capped the biggest gain since August 2009, the government said last week. The Federal Reserve cut monthly bond buying by almost half since November and said April 30 it will keep paring stimulus.

“Because of the better longer-term economic outlook, some investors don’t want to own gold,” Donald Selkin, who helps manage about $3 billion of assets as chief market strategist at National Securities Corp. in New York, said May 2. “A lot of people think the Fed will keep tightening and they’ll raise rates sooner than later.”

Futures gained 0.2 percent to $1,302.90 an ounce last week on the Comex in New York. The Standard & Poor’s GSCI Spot Index of 24 commodities fell 1 percent, while the MSCI All-Country World Index of equities rose 1.1 percent and the Bloomberg Treasury Bond Index gained 0.4 percent. The Bloomberg Dollar Spot Index slid 0.3 percent. Gold settled today at $1,309.30 as of 1:42 p.m. in New York.

ETP Holdings

The net-long position in gold fell 0.7 percent to 89,954 futures and options in the week ended April 29, according to data from the U.S. Commodity Futures Trading Commission. Short bets rose by 2,079 contracts, and longs gained 1,461.

Bullion holdings in global ETPs slid 0.6 percent last week, the seventh straight decline. The assets tumbled 33 percent last year, wiping about $73 billion from the value of the funds after investors lost faith in the precious metal as a store of value.

The U.S. jobless rate plunged to 6.3 percent in April, the lowest since September 2008, the Labor Department said May 2. An improving labor market gives the Fed more leeway to keep trimming stimulus, after cutting its monthly debt purchases to $45 billion last week. Gold slumped 28 percent in 2013, the most in three decades, as the central bank signaled it would slow bond buying.

Fed Stimulus

The metal jumped 70 percent from December 2008 to June 2011 as the Fed bought debt and cut interest rates to a record in a bid to boost the economy.

After falling 1.3 percent in four straight days of losses, futures rebounded 1.5 percent on May 2, the biggest gain since mid-March and erasing the weekly loss. Bullion rallied amid reignited tensions in Eastern Europe.

Ukraine sent armored vehicles and artillery to retake Slovyansk, a separatist stronghold, as President Barack Obama and German Chancellor Angela Merkel threatened more sanctions against Russia. Prices reached a six-month high of $1,392.60 on March 17 as Russia annexed Crimea from Ukraine.

“Gold is going to remain relatively well-bid as an insurance policy for bad things happening around the world,” Michael Mullaney, who oversees $11.3 billion as Boston-based chief investment officer for Fiduciary Trust Co., said May 1. “The propensity for geopolitical tensions to happen right now, obviously, is elevated.”

China Imports

Gold imports to China, the top bullion buyer, from Hong Kong dropped to 80.6 metric tons in March, from 111.4 tons a month earlier, according to Hong Kong Census and Statistics data released April 28.

Combined net-wagers across 18 U.S. traded commodities rose 3.8 percent to 1.73 million contracts as of April 29, the CFTC data show. That’s the highest since at least 2006. The gains were led by increased holdings of crops, gold and copper.

Investors withdrew $220.2 million from U.S.-based ETFs tracking commodities in the five days through May 1, with outflows in precious metal funds reaching $291.3 million, data compiled by Bloomberg show.

Bullish bets on crude oil dropped 0.9 percent, a second straight loss, the CFTC data show. West Texas Intermediate fell 0.8 percent in New York last week. Crude stockpiles gained 1.7 million barrels last week to 399.4 million, the most since the Energy Information Administration began reporting weekly data in 1982.

Copper Bulls

Speculators turned bullish on copper for the first time since February, with net-long positions reaching 5,067 contracts. That compares with a net-short holding of 3,527 a week earlier. Stockpiles monitored by exchanges in Shanghai, London and New York have fallen to the lowest since December 2008.

A measure of speculative positions across 11 agricultural commodities gained 5.5 percent to 1.07 million contracts, the first increase in four weeks. The S&P GSCI Agriculture Index of eight crops climbed 19 percent this year.

Net-long positions in cotton rose 8.1 percent to 61,901 contracts, the biggest gain since March 11. Prices in New York capped a sixth straight monthly gain in April, the longest rally in three decades. About 74 percent of Texas was in moderate-to-exceptional drought as of April 29. The state is the top grower in the U.S., the world’s biggest exporter.

Wheat Wagers

Wheat net-longs climbed 57 percent to 42,590 contracts, the first gain in almost a month. Prices advanced 1.1 percent last week on concern that dry weather damaged American crops. Output in Kansas, the biggest U.S. grower of winter varieties, may fall 18 percent this year to the lowest since 1996 after drought and freezes eroded grain prospects, surveys from a three-day annual crop tour showed.

“Any weather-related impact on crops anywhere in the world is going to put upward pressure on prices,” Walter “Bucky” Hellwig, who helps manage $17 billion at BB&T Wealth Management in Birmingham, Alabama, said May 1. “We’ll just have to see how the growing season goes to determine any glitches. With gold, the Fed tapering is an overlay that has been there for a while and continues to be a headwind.”

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

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

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