Speculators raised bullish wagers on commodities to a three-month high on mounting speculation that more economic stimulus will boost demand for everything from oil to metals and crop prices will keep rising as drought spreads.
Money managers raised their net-long positions across 18 U.S. futures and options by 7.5 percent to 1.13 million contracts in the week ended July 17, U.S. Commodity Futures Trading Commission data show. Wheat holdings reached a record, and corn bets climbed to the highest since March.
Almost $2.5 trillion was added to the value of global equities since June 4 as investors anticipated policy makers would step in to bolster growth. Federal Reserve Chairman Ben S. Bernanke told Congress during testimony on July 18 that he is prepared to act to boost the recovery and central banks from Europe to China cut interest rates in the past several weeks. The worst U.S. drought in 56 years is parching crops, and a lack of rain is also wilting fields from Australia to Russia.
“You could probably call it a miniature stampede back into commodities,” said Jeffrey Sica, the Morristown, New Jersey-based president of SICA Wealth Management who helps oversee more than $1 billion of assets. “A lot of investors at this point see that increased liquidity in the market will mean more appreciation in raw-materials prices.”
The Standard & Poor’s GSCI Spot Index climbed 4.9 percent last week, capping a fourth consecutive gain that is now the longest rally in a year. The MSCI All-Country World Index of equities rose 0.6 percent, and the dollar advanced 0.2 percent against a measure of six trading partners. Treasuries returned 0.3 percent, a Bank of America Corp. index shows. The GSCI declined 2.8 percent to settle at 633.47 today.
Seventeen of the 24 commodities in the S&P GSCI rose last week, led by an 11 percent gain in wheat. Corn and soybeans rose to records in Chicago today before declining.
The Fed is ready to take steps to spur expansion “as appropriate,” Bernanke said July 18 in testimony before U.S. lawmakers. Chinese Premier Wen Jiabao reiterated that the government will keep adjusting policy in the second half to boost growth, the official Xinhua News Agency reported July 15.
The response from policy makers coupled with tight raw-material supplies leaves the “case for higher commodity prices intact,” Goldman Sachs Group Inc. analysts led by Jeffrey Currie in New York wrote in a report July 16. The bank maintained a prediction that commodities would return 27 percent in the next 12 months.
Investors pulled $153 million from raw-material funds in the week ended July 18, according to EPFR Global, which tracks money flows. Gold and other precious-metal outflows totaled $115 million, the Cambridge, Massachusetts-based company said.
The actions from global leaders may not be as pronounced as some traders are expecting, said David Goerz, the San Francisco-based chief investment officer at Highmark Capital Management Inc., which oversees about $18 billion of assets.
China won’t relax property control policies and will instead seek to keep a “firm grip” on the real-estate market to prevent a rebound in housing prices, Xinhua reported July 20. Home prices in June rose in the most number of cities tracked by the government in 11 months, the country’s statistics bureau said July 18.
Even as Bernanke left open the option of taking more steps to stimulate growth, he’s refrained from announcing specific policies or giving a time frame. The Fed lowered interest rates to a record in December 2008 and bought $2.3 trillion in government and housing debt through June 2011 in two rounds of quantitative easing known as QE1 and QE2.
“QE3 is off the table,” Goerz said. “The Fed doesn’t want to expand its balance sheet any more than it has already. Easy monetary policy is coming to an end. As a result, commodities won’t do well.”
The S&P GSCI jumped 17 percent since reaching this year’s low on June 22, rebounding from a bear market, as Europe’s leaders provided as much as 100 billion euros ($122 billion) to Spanish banks and China reduced interest rates. On June 20, the Fed expanded its program to replace short-term bonds with longer-term debt by $267 billion.
The U.S. is the world’s biggest oil and corn consumer, and China is the top user of metals, soybeans and cotton. Europe consumes 18 percent of the world’s copper and accounts for 22 percent of oil demand, data from Barclays Plc and BP Plc show.
Commodities have reached a “turning point” in the past several weeks, Barclays Plc analysts led by Suki Cooper wrote in a report July 20. Grains and soybeans will lead a second-half recovery in prices, the bank said.
Investors increased their bullish oil bets by 4 percent to 133,165 contracts in the week ended July 17, the CFTC data show. Gold wagers climbed 4.5 percent to 92,964, the second gain in three weeks.
A measure of 11 U.S. farm goods showed speculators raised bullish wagers in agricultural commodities by 5 percent to 825,425 contracts, the highest since September.
Money managers boosted soybean holdings for a sixth straight week and to 252,939 contracts, the most since May 1. Corn bets jumped 17 percent to 235,597 contracts, the most since March 20. Wagers on a wheat rally gained 16 percent to 72,675, the highest since the data begins in June 2006.
Grain prices have surged amid the worst U.S. drought since 1956. The S&P GSCI Agriculture Spot Index of eight commodities jumped 39 percent since mid-June to the highest in 13 months.
Weather in June through July is on track to be the second-driest in 118 years of records, and this month may be the second-warmest ever, forecaster T-Storm Weather LLC said July 20. Conditions are the warmest and driest since 1936, the peak of the Dust Bowl, the forecaster said.
Australia will be drier-than-normal for the next three months, the Bureau of Meteorology said July 18. Russian farmers will collect 46.5 million metric tons of wheat in the year that began July 1, down 4.1 percent from 2011, researcher SovEcon said July 19.
“Weather-related issues have certainly drawn people back,” said Peter Sorrentino, a senior fund manager at Huntington Asset Advisors in Cincinnati who helps oversee $14.7 billion. “It’s like a big money tap has been turned on.”