Hedge funds raised their bullish commodity bets as mounting speculation that central banks will announce more economic stimulus halted a slide in prices and drove gold to its longest rally since August.
Money managers raised combined net-long positions across 18 U.S. futures and options by 9.1 percent to 587,327 contracts in the week ended June 12, rebounding from the lowest level this year, Commodity Futures Trading Commission data show. Gold holdings rose to a six-week high, while wagers on a rally in silver prices jumped to the highest since the start of May.
More than $1.5 trillion was added to the value of global equity markets in the past two weeks on speculation the Federal Reserve will join central banks in bolstering growth at its policy meeting this week. Commodities rose more than 80 percent from December 2008 to June 2011 as the Fed bought $2.3 trillion of debt in two rounds of quantitative easing and held borrowing costs at a record low. Policymakers from the U.K. to Japan are warning of the threat posed to markets by Europe’s debt crisis.
“The markets are signaling they expect some kind of central monetary easing,” said Peter Sorrentino, a senior fund manager at Huntington Asset Advisors in Cincinnati, which oversees $14.7 billion of assets. “That tends to bode well for the type of assets that get re-priced very quickly when that happens, and that’s the commodity complex.”
The Standard & Poor’s GSCI Spot Index of 24 commodities fell for five sessions through June 13, before rallying 1 percent the next two days to pare last week’s drop to 0.9 percent. The MSCI All-Country World Index of equities last week rose 1.7 percent. The U.S. Dollar Index, a measure against six trading partners, slipped 1.1 percent last week. Treasuries returned 0.3 percent, a Bank of America Corp. index shows.
The GSCI gauge fell 0.2 percent to settle at 581.45 today.
The Fed’s Open Market Committee, which sets the course of policy, begins a two-day meeting June 19. Fed officials, including Vice Chairman Janet Yellen, have said there’s scope for further easing at some point to reduce a jobless rate persisting above 8 percent.
Goldman Sachs Group Inc. predicted a 29 percent return over the next year from S&P’s GSCI Enhanced Commodity Index, saying that Europe’s policy makers will contain the debt crisis and that the recovery in the U.S. and China will continue. Price risks are “shifting more to the upside,” Jeffrey Currie, the bank’s head of commodities research in New York, said in the report on June 11.
Government and central-bank efforts to boost the global expansion may be coming too late amid signs commodity demand is already being curbed, said John Stephenson, who helps manage C$2.7 billion ($2.6 billion) at First Asset Investment Management Inc. in Toronto.
Manufacturing, which makes up about 75 percent of total production in the U.S., dropped 0.4 percent last month, and output at factories, mines and utilities fell 0.1 percent, a Fed report showed June 15. More Americans than forecast applied for unemployment insurance payments in the week ended June 9, another sign that the labor market is struggling, according to government data June 14.
Greece’s largest pro-bailout parties, New Democracy and Pasok, won enough seats to forge a parliamentary majority, easing concern that the country was headed toward an imminent exit from the euro. Last month’s elections failed to produce a government, increasing investors’ concern the 17-nation euro would fracture.
“The risk is overwhelming to the downside in terms of commodity markets,” Stephenson said. “It’s a terrible macroeconomic backdrop because you’re looking at the very real problem of contagion through the euro zone.”
Investors added $376 million to commodity funds in the week ended June 13, according to data from Cambridge, Massachusetts-based EPFR Global, which tracks money flows. That’s the biggest inflow since the last week of February, said Cameron Brandt, the director of research for EPFR. Gold and precious-metals funds took in $747 million, he said.
“People are scared, and most of the policy solutions to the things that are scaring them involve more quantitative easing by central banks, which basically means pumping out more paper currency,” Brandt said. Those are “two good reasons to get some assets into gold,” he said.
Wagers on higher bullion prices rose for a third week, the longest increase since February. Net-long positions climbed 1.3 percent to 99,684 contracts, the highest since May 1, CFTC data show. Bets on higher silver prices gained 12 percent to 7,312 futures and options, a six-week high.
Gold rose 3.8 percent this year, after 11 straight annual gains. Investors are buying the metal as a hedge against inflation, speculating that global stimulus measures will devalue currencies and increase consumer costs.
The net-long position in oil fell for a sixth consecutive week as the Organization of Petroleum Exporting Countries pledged June 14 to maintain production targets even after prices plunged. Crude has tumbled to $83.88 a barrel in New York, from as much as $110.55 in March.
A measure of 11 U.S. farm goods showed speculators raised bullish bets in agricultural commodities by 21 percent to 378,963 contracts, the first increase in three weeks. Investors almost doubled bullish bets on hogs and increased their net-long position in soybeans by 19 percent, the CFTC data show.
“We’re probably in the later stages of the commodity correction,” said John Bailey, the founder and chief executive officer of Stamford, Connecticut-based Spruce Private Investors LLC, which advises clients on $3 billion of assets. “We’re looking for a policy-led rebound in the second half.”