Funds Cut Bullish Gold Wagers Most This Year

Hedge funds pared bets on a gold rally at the fastest pace this year after prices capped the biggest monthly decline since December.

Money managers trimmed their net-long position by 24 percent as a rally in U.S. equities to a record eroded the appeal of alternative assets. Short holdings are now the highest in 15 weeks and assets in exchange-traded products backed by metal the lowest since 2009.

The value of ETP holdings contracted $2.6 billion in May, the worst month since the end of 2013, the year that marked the end of the bull market in gold. The Standard & Poor’s Total Return Index of 24 commodities fell for the first time since January, led by crops, natural gas and precious metals.

“Gold has been responding very negatively to the rise in equities,” Sameer Samana, a senior international strategist at Wells Fargo Advisors LLC in St. Louis, which oversees $1.3 trillion, said on May 29. “Political situations can’t provide long-term support, and we are seeing that now as the Ukraine crisis seems to be easing. Commodities will continue to underperform.”

Gold futures declined 3.9 percent in May to $1,246 an ounce in New York. The Standard & Poor’s GSCI Spot Index of 24 commodities slid 0.4 percent, led by losses of at least 13 percent for coffee and wheat. The MSCI All-Country World Index of equities rose 1.8 percent. The Bloomberg Treasury Bond Index gained 1 percent.

Short Bets

The net-long position in gold fell to 68,393 futures and options contracts in the week to May 27, U.S. Commodity Futures Trading Commission data show. Short holdings betting on a drop surged 72 percent, the biggest gain in six months.

Prices touched $1,241.10 today, the lowest since Feb. 3, after traders shrugged off a report last week that showed the U.S. economy contracted in the first quarter. Federal Reserve policy makers said at their April meeting that growth has strengthened after adverse winter weather took its toll.

Futures could fall to $1,200 by the end of the year amid “negative momentum,” according to Technical Research’s Louise Yamada, who’s the former head of technical research at Citigroup Inc. Goldman Sachs Group Inc. on May 13 forecast a drop to $1,050 amid an outlook for accelerating U.S. expansion.

‘Dismal’ Quarter

Expectations that the economy has begun to rebound are misplaced, according to Jeff Sica of Sica Wealth Management in Morristown, New Jersey. U.S. consumer spending unexpectedly fell in April, the government said May 30.

“The first quarter was dismal, and the stock markets indicate that there is too much euphoria about the economy,” Sica, who helps oversee more than $1 billion, said on May 30. “Gold is going to return as one of the favored assets, because people will want to hedge against a slowdown.”

Bullion climbed 70 percent from December 2008 to June 2011 as the Fed bought debt and held borrowing costs near zero percent. The central bank reduced its monthly asset buying to $45 billion in April, the fourth straight $10 billion cut.

Combined net-wagers across 18 U.S. traded commodities fell 5.6 percent to 1.42 million contracts as of May 27, the CFTC data show. It was the fourth straight drop, the longest slide since November.

Bets on rising oil prices rose 7.4 percent to 348,069 contracts. West Texas Intermediate rose 3 percent last month, the first advance since February.

Farm Bets

A measure of net-long positions across 11 agricultural products slid percent 9.4 percent to 818,728 contracts, the lowest since February. The S&P GSCI Agriculture Index of eight crops dropped 8.1 percent in May, the most since June.

U.S. farmers are forecast to collect record corn and soybean harvests, and cotton-crop conditions improved after showers in Texas, the top growing state. Rising American coffee stockpiles are helping to cushion the impact of production losses after a Brazil drought in the first quarter.

Wagers on a coffee rally dropped 3.4 percent to 39,482 contracts, the second decline in three weeks. Prices slumped 14 percent in May, the most since 2011.

The wheat net-long position holding fell 19 percent to 19,715 contracts, the lowest since March 11. World reserves are poised to climb to a three-year high, the U.S. Department of Agriculture forecasts.

“The performance of all agricultural commodities is closely tied to the supply situation and weather conditions,” Jim Russell, who helps oversee $120 billion as a senior equity-strategist for U.S. Bank Wealth Management in Cincinnati, said on May 30. “While gold will stick to its theme of falling, we see a lid on prices of most commodities as supplies are in abundance.”

To contact the reporter on this story: Debarati Roy in New York at droy5@bloomberg.net

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.