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Speculators Raise Metals Wagers by Most Since July: Commodities

Speculators raised bets on higher metal prices by the most since July, turning bullish on copper for the first time in four months on signs of growth in the U.S., increasing demand in China and more confidence in Europe.

Money managers expanded combined net-long positions in five industrial and precious metals by 13 percent to 152,665 futures and options in the week ended Jan. 17, Commodity Futures Trading Commission data show. They are now the most bullish on copper since August. Traders increased holdings in silver, the precious metal most used in industry, to the highest since November. Wagers on rising gold prices advanced the most in two months.

The Standard & Poor’s GSCI Spot Index of 24 commodities has risen 2.5 percent this month, led by silver, zinc and aluminum. U.S. jobless claims plunged to the lowest in almost four years and factory output expanded the most in a year. Greece neared an accord with creditors that will free up a second round of aid and help contain Europe’s debt crisis. China’s slowest growth in 10 quarters increased speculation the government will allow banks to increase lending.

“It’s a play on a possible demand recovery,” said Spencer Patton, the Chicago-based chief investment officer for Steel Vine Investments LLC. “People are now accepting gradually that the Europe situation is not that terrible, and China will probably have a soft landing. And the icing on the cake is the growth in the U.S.”

Prices Rise

The S&P GSCI increased this year as the MSCI All-Country World Index of equities advanced 5 percent, with $1.6 trillion added to the value of global stocks. The U.S. Dollar Index, a measure against six trading partners, is down 0.5 percent today after falling 1.6 percent last week, the most since October. The yield on 10-year Treasuries climbed 12 basis points, or 0.12 percentage point, to 2.02 percent since Jan. 1, according to Bloomberg Bond Trader prices.

Cattle and orange juice jumped to records as 13 of the 24 raw materials tracked by the S&P GSCI advanced last week. Gold rallied to a one-month high, and nickel reached its highest since September.

“It’s a good time for commodities,” said James Paulsen, who helps oversee about $333 billion of assets as chief investment strategist at Minneapolis-based Wells Capital Management. “Prices are bottoming out, and you saw the move in metals.”

Copper Outlook

Copper futures that dropped to a 14-month low in October are up 11 percent this month, heading for the biggest January rally since 2003. Hedge funds and other money managers had a net-long position of 4,775 contracts last week, after betting on lower prices for 17 consecutive weeks, the longest bearish stretch since July 2009, CFTC data show.

Copper for March delivery advanced 1.4 percent to settle at $3.7985 a pound on the Comex, climbing the most in almost a week.

Confidence among U.S. homebuilders, the biggest users of copper, rose in January to the highest level in more than four years, the National Association of Home Builders/Wells Fargo sentiment gauge showed Jan. 18. A typical house uses about 400 pounds (181 kilograms) of copper pipes and wire.

The Federal Reserve reported Jan. 18 that U.S. factory output climbed 0.9 percent last month, the most since December 2010. Unemployment claims dropped by 50,000 to 352,000 in the week ended Jan. 14, the lowest level since April 2008, the Labor Department said on Jan. 19.

Gross domestic product in China, the biggest consumer of everything from zinc to copper to cotton, expanded 8.9 percent in the last three months of 2011 from a year earlier, the slowest pace in 10 quarters, the statistics bureau said Jan. 17.

Jump Start

Nouriel Roubini, the economist who predicted the 2008 financial crisis, told Bloomberg TV on Jan. 20 that the Chinese government will need to “jump start the economy” by easing lending curbs and interest rates to avoid “a significant growth slowdown this year.”

Net-long positions in gold rose 5.9 percent to 116,978 contracts, the first increase since Dec. 6, CFTC data show. Holdings in silver expanded 13 percent to 13,139 contracts, the third straight gain and the highest total since Nov. 15. Prices for both metals rallied for a third week.

The net-long position in platinum, used in catalytic converters for cars, rose 13 percent to 14,122 contracts, while palladium holdings rose to 3,651 contracts, up 6.9 percent, the most in more than a month, CFTC data show. Palladium prices jumped 6.4 percent last week, the most since December.

European Debt

Hans Humes, the president of Greylock Capital Management and a member of the creditor committee negotiating the debt-swap accord with the Greek government, told Bloomberg TV on Jan. 20 that “significant progress” was made on reaching an agreement.

Investors pulled $253 million out of commodity funds in the week ended Jan. 18, according to Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Gold and precious-metals outflows totaled $259 million, he said.

The sovereign-debt crisis in Europe has prompted “de-risking” among investors, Laurence D. Fink, the chief executive officer of BlackRock Inc., said in a Jan. 19 conference call.

Even with the increase in metals wagers, net-long positions across 18 U.S. futures and options fell by 8.9 percent to 655,654 contracts last week, CFTC data shows. That included reduced holdings in oil and corn.

“Most people are not sure what will emerge out of Europe and when China will loosen monetary policy,” said Jeffrey Sica, the Morristown, New Jersey-based president of SICA Wealth Management who helps oversee $1 billion of assets. “The rise that we saw in commodity prices may be very temporary.”

Farm Goods

A measure of 11 U.S. farm goods showed speculators lowered wagers on higher agricultural commodities by 22 percent, the biggest drop since November. While bullish holdings in corn fell 21 percent to 176,309 contracts as of Jan. 17, prices gained 2 percent in the week ended Jan. 20. Speculators increased their net-short position in wheat by 39 percent to 49,496 contracts, as prices ended the week up 1.4 percent.

“At this point, some investors are willing to give Europe a pass,” said John Stephenson, who helps manage $2.7 billion of assets at First Asset Investment Management Inc. in Toronto. “Strong data out of the U.S. is good, and some commodities are attractive at current prices, so things are beginning to get more promising.”

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