Investors pared bullish commodity bets on signs of slowing growth in China and as Goldman Sachs Group Inc. cut its recommendation on raw materials.
Hedge funds and other money managers reduced combined net-long positions across 18 U.S. futures and options by 1.8 percent to 1.14 million contracts in the week ended March 27, Commodity Futures Trading Commission data show. Bullish wagers on hogs fell the most, dropping 31 percent to the lowest since June, while those on gold had the biggest gain, rising 15 percent, the largest increase since the end of January.
The Standard & Poor’s GSCI Spot Index of 24 raw materials tumbled 2.1 percent last week, paring this year’s advance to 6.8 percent. Goldman cut its three-month recommendation on March 28, warning that the economy will “soften” this quarter. Societe Generale SA said March 27 that Chinese corporate profits won’t grow at all this year, and Federal Reserve Chairman Ben S. Bernanke said two days later that the pace of the U.S recovery has been “extremely sluggish.”
“The story over the near term is probably one of weakness,” said Anthony Valeri, a market strategist at LPL Financial in San Diego, which oversees $330 billion of assets. “There are some renewed concerns over China’s economic growth. That’s been the negative for commodities.”
The S&P GSCI fell 2.1 percent in March, the most since September, while the MSCI All-Country World Index of equities rose 0.4 percent. The Dollar Index gained 0.3 percent against a basket of six major trading partners last month, and Treasuries lost 1 percent, a Bank of America Corp. index shows.
Fifteen of the raw materials tracked by the S&P GSCI fell last week. Sugar slumped 7.1 percent, natural gas dropped 6.5 percent and cattle declined 4.1 percent. China’s benchmark stock index retreated to a 10-week low on March 29 on concern the slowing economy will erode company earnings. Premier Wen Jiabao said March 5 that the nation’s gross domestic product target is now 7.5 percent, the slowest since 2004.
Open interest, or contracts outstanding, in the GSCI gauge rose 2.5 percent as the 100-day moving average of volatility in prices dropped to the lowest since October 2007, according to data compiled by Bloomberg. That combination may be “a good sign” for commodities, James Paulsen, the chief investment strategist at Minneapolis-based Wells Capital Management, said March 28.
“We do not expect a hard-landing scenario for China,” said Nelson Louie, the global head of commodities at New York-based Credit Suisse Asset Management who helps manage $11 billion of assets. “The fact that they’re looking to promote consumer-oriented growth bodes well for a lot of raw-material prices. This may lead to rising imports for commodities such as crude oil and grains.”
A measure of 11 U.S. farm goods showed speculators trimmed bullish wagers by 1.5 percent to 719,872 contracts. Corn holdings dropped 14 percent to 224,557 in the week ended March 27, the biggest slide since Jan. 17. Futures in Chicago surged 6.6 percent on March 30, the most in 21 months, after U.S. inventories slumped more than analysts forecast. Prices jumped 1.7 percent today to close at $6.55 a bushel in Chicago.
Hog futures fell 2 percent last week, a third consecutive decline, on signs of increasing pork supplies. The U.S. hog-breeding herd on March 1 was 0.6 percent larger than a year earlier, exceeding analyst estimates, as lower feed costs spurred producers to expand, the government said on March 30.
Goldman’s commodity research team, led by Jeffrey Currie in London, said it was reducing the three-month recommendation because prices already reached its targets. While raw materials may drop or be little changed in the near term, they probably will gain 10 percent over the next 12 months, the analysts said. Goldman’s target for crude oil is $123.50 a barrel, 20 percent higher than the close on March 30, and gold may reach $1,940 an ounce, up 16 percent.
Holdings in gold-backed exchange-traded products increased 0.3 percent to 2,396.5 metric tons last week, valued at $128.5 billion, according to data compiled by Bloomberg. That’s within 0.6 percent of the record reached March 13. Prices rose for a second week, advancing 0.6 percent. Silver futures added 0.7 percent, rallying from a four-week decline. Speculators cut their bullish bets for a fourth week and to the lowest since January, CFTC data show.
Crude oil declined 3.6 percent in New York trading, retreating for a third consecutive week. Hedge funds trimmed their net-long position for a second week, to the lowest since mid-February, according to the CFTC data. Bearish bets on natural gas increased to the most since December as prices slumped 6.6 percent and reached their lowest in a decade.
Investors added $79 million to commodity funds in the week ended March 28, according to data from Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Gold and precious-metals outflows totaled $12 million, said Cameron Brandt, the director of research.
“The blue-skies scenario at the beginning of the year that the euro zone would muddle through, the U.S. recovery would gain steam, and China would continue to chug along at close to double-digit growth, while none of them have collapsed, they all certainly have been tested in recent weeks,” Brandt said.
European finance ministers agreed on March 30 in Copenhagen to increase rescue funds for indebted nations in the region, bringing the size of the firewall to 800 billion euros ($1.07 trillion). The 17-nation euro economy will contract for three consecutive quarters through September, the median of 15 economist estimates compiled by Bloomberg show.
Europe accounts for about 18 percent of global copper demand and 22 percent of oil use, data from Barclays Capital and BP Plc show. It also consumes 18 percent of the world’s wheat and has about 9 percent of its cattle, U.S. Department of Agriculture data show.
“People are questioning the growth story,” said Jeffrey Sherman, who helps manage $30 billion of assets for DoubleLine Capital LP in Los Angeles. “There’s just fear in general on where is growth going to come from.”