Hedge funds boosted bets on rising commodities to the highest in 15 months, driving prices into a bull market as the U.S. drought worsened and the Federal Reserve signaled it may take more steps to spur economic growth.
Money managers’ net-long position across 18 U.S. raw materials rose 10 percent to 1.32 million futures and options in the week ended Aug. 21, U.S. Commodity Futures Trading Commission data show. Holdings doubled in two months to the highest since May 2011. Bets on corn are the most bullish in 15 months amid the worst U.S. drought in 56 years, while wagers on gold rebounded and platinum more than doubled.
The Standard & Poor’s GSCI Spot Index of 24 raw materials ended the week up 20 percent from a June low, the common definition of a bull market. Minutes of the Fed’s last meeting, released Aug. 22, showed many policy makers favored “additional monetary accommodation” soon unless growth strengthens. Purchases of new U.S. homes rose more than forecast in July, matching a two-year high. People’s Bank of China Governor Zhou Xiaochuan said Aug. 23 that stimulus measures “can’t be ruled out” in the world’s second-largest economy.
“The economic situation globally has improved,” said Adrian Day, the president of Adrian Day Asset Management in Annapolis, Maryland. “You have global growth, and prospects for added stimulus, and that’s good for commodities.”
The S&P GSCI gained 0.4 percent last week, the fourth consecutive weekly gain, after touching a three-month high Aug. 23. The MSCI All-Country World Index of equities slid 0.4 percent, and the dollar lost 1.2 percent against a measure of six major trading partners. Treasuries gained 0.7 percent, a Bank of America Corp. index showed. The GSCI commodity index fell 0.5 percent today as of 3:24 p.m. in New York.
Fifteen commodities tracked by the gauge rose last week, led by metals and soybeans. Silver futures jumped 9.3 percent, the biggest weekly gain since October, and gold’s 3.3 percent rally was the most since January. Bullion holdings in exchange-traded products backed by the precious metal rose to a record four times last week, reaching 2,448.64 metric tons on Aug. 24, data compiled by Bloomberg showed.
Evidence that the Fed stands ready to deliver additional growth measures “should be very good for markets,” Warren Hogan, the chief economist at Australia & New Zealand Banking Group Ltd., said in a Bloomberg Television interview Aug. 23. Credit Suisse Group AG said in a report the same day that increased expectations for so-called quantitative easing by central banks will boost prices.
Further easing in the U.S. isn’t a good idea because interest rates are already “crazy low,” said Jack Ablin, who helps oversee about $60 billion of assets as chief investment officer of BMO Harris Private Bank in Chicago. Stimulus measures “should be off the table,” he said. “The super-cycle for commodities is going to flatline.”
The peak of the resources boom will probably be within one to two years, Reserve Bank of Australia Governor Glenn Stevens told a parliamentary committee in Canberra on Aug. 24.
The S&P 500 Index of U.S. equities fell 0.8 percent on Aug. 23 after the government reported that the number of Americans filing applications for unemployment benefits climbed to a one-month high, showing little progress in the labor market. Jobless claims rose by 4,000 for a second week to reach 372,000 in the period ended Aug. 18, Labor Department figures showed. The median of 41 economists surveyed by Bloomberg was 365,000.
Investors added $1.47 billion to commodity funds in the week ended Aug. 22, the third inflow of money in the past four weeks, according to data from Cambridge, Massachusetts-based EPFR Global. Precious metals including gold, silver, platinum and palladium accounted for $1.26 billion of the inflows, said Cameron Brandt, the director of research.
“I interpret that as meaning the Fed will come through for some” with regard to the “long-anticipated QE3,” said Brad Durham, a managing director for EPFR.
Bank of China’s Zhou said Aug. 23 that adjustments to borrowing costs and lenders’ reserve requirements are possible. The central bank lowered interest rates in June and July for the first time since 2008 and made three cuts in banks’ reserve requirements starting in November. China is the world’s biggest consumer of everything from copper to pork to soybeans, and the U.S. is the largest user of crude oil and corn.
Speculator holdings in gold futures and options jumped 35 percent in the week ended Aug. 22, the first increase in three weeks, to 110,623 contracts, the most since May 1, CFTC data show. Traders were the most bullish in nine months, with 29 of 35 analysts surveyed by Bloomberg expecting prices to rise this week. Three were bearish, and three were neutral, making the proportion of bulls the highest since Nov. 11.
Investors bought 53.26 metric tons of the precious metal valued at about $2.77 billion through gold-backed exchange-traded products this month, the most since November, overtaking France as the world’s fourth-largest hoard when compared with national reserves.
Bullish platinum wagers more than doubled to 15,365 contracts, CFTC data show. Prices rallied 5.5 percent last week, the most since January, on concern that clashes between police and striking miners will spread in South Africa, the biggest producer of the metal. Police killed 34 striking workers at Lonmin Plc’s Marikana mine Aug. 16.
Investors raised bullish oil bets by 18 percent to 179,526 contracts, the most since early May, CFTC data show. Prices advanced 0.1 percent last week to $96.15 a barrel in New York, the fourth consecutive gain, amid speculation that European leaders will make progress in resolving the debt crisis and central banks will spur economic growth. The commodity touched a 15-week high of $98.29 on Aug. 23, and gained 0.9 percent today to $97.04, as Tropical Storm Isaac strengthened, crimping output in the Gulf of Mexico.
A measure of 11 U.S. farm goods showed speculators increased bullish bets in agricultural commodities by 7.1 percent to an 11-month high of 912,186 contracts, the 10th gain in 11 weeks.
Money managers raised corn holdings by 13 percent to 342,893 contracts, the most since the end of April 2011. Wagers have increased for 11 consecutive weeks, the longest stretch of gains since at least June 2006, when the data starts.
Corn surged 60 percent since June 15, reaching a record $8.49 a bushel on Aug. 10, as the drought parched millions of acres. Soybeans gained 33 percent since mid-June and reached a record $17.605 a bushel today.
Yields from this year’s corn harvest probably will drop to 120.25 bushels an acre, down 18 percent from 2011 and less than forecast Aug. 10 by the U.S. Department of Agriculture, the Professional Farmers of America said Aug. 24 after a weeklong sampling of fields in seven states. Soybean growers may harvest 34.8 bushels an acre, down 16 percent, the farmers said.
“The stage is set for commodities to continue higher,” said Jason Votruba, the co-manager for small-cap equities at Scout Investment Advisors in Kansas City, Missouri, which manages about $22 billion of assets. “If we get more stimulus in the U.S., that’s going to be bullish.”