Hedge funds cut bullish commodity bets to the lowest since July as speculation that governments in China and Europe aren’t doing enough to boost growth drove prices to the biggest loss in five weeks.
Speculators reduced net-long positions across 18 U.S. futures and options by 4.4 percent to 1.18 million contracts in the week ended Oct. 16, the lowest since July 24, U.S. Commodity Futures Trading Commission data show. Gold bets slid 7 percent, the first decline since Aug. 14, and those in silver fell 5.8 percent, the first drop in 12 weeks.
China, the biggest buyer of everything from coal to cotton to copper, slowed for a seventh straight quarter, the government said Oct. 18. The state won’t provide large economic stimulus, Song Guoqing, an adviser to the People’s Bank of China, said the same day. The 17-nation euro area will contract 0.4 percent this year, the International Monetary Fund said Oct. 9, cutting its 2013 global growth forecast to 3.6 percent from 3.9 percent. Europe consumes 22 percent of the world’s oil, BP Plc estimates.
“Global growth in general is showing some degree of weakening,” said Bill Greiner, who helps oversee $13 billion of assets as chief investment officer at Mariner Wealth Advisors in Kansas City, Missouri. “In China, as far as the economy is concerned, GDP growth is pretty weak. People are looking for some signs of economic stability.”
The Standard & Poor’s GSCI Spot Index of 24 raw materials fell 1.4 percent last week, the most since Sept. 21. The MSCI All-Country World Index of equities rose 1.2 percent, and the dollar was little changed against a basket of six major trading partners. Treasuries lost 0.5 percent, a Bank of America Corp. index shows. The S&P GSCI gauge dropped 1.2 percent to settle at 648.50 today.
Fourteen of the commodities tracked by S&P slumped last week. Gasoline prices tumbled 6.8 percent. Silver declined 4.7 percent, the most since June. Copper lost 2.8 percent on Oct. 19, the biggest one-day drop in six months.
China’s economic growth has slowed to its weakest pace in more than three years. Gross domestic product in the third quarter slid to 7.4 percent from a year earlier. China’s population of 1.34 billion people consumes 42 percent of the world’s copper, Barclays Plc estimates.
French President Francois Hollande said additional help for Spain wasn’t discussed at the summit of European leaders in Brussels. There’s no certainty Greece will remain a member of the euro, he told journalists Oct. 19. Europe accounts for about 18 percent of global copper consumption, Barclays estimates.
An improving outlook for the U.S. economy and resilient global demand for raw materials will help boost prices in the long-term, said Jeffrey Sica, the president and chief investment officer at SICA Wealth Management LLC.
Housing starts in the U.S. surged 15 percent in September to the highest in four years, Commerce Department figures showed Oct. 17. American manufacturers produced more appliances, clothing and construction supplies last month as output at factories, mines and utilities rose 0.4 percent, according to data from the Federal Reserve on Oct. 16.
“I’m definitely bullish commodities long-term,” said Sica, who helps oversee more than $1 billion in assets in Morristown, New Jersey. “We still see an exorbitant amount of demand for commodities.”
Money managers added $90 million to commodity funds in the week ended Oct. 17, according to Cameron Brandt, the director of research for Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Gold and precious metal funds saw a net outflow of $158 million, snapping 11 consecutive weeks of inflows, he said.
Metals demand in China is “really slow” as economic growth cools, Pengjiang (Richard) Fu, the head of Asian commodities trading at Newedge Group SA, said in an interview in London on Oct. 19. Slack demand for raw materials from China may last as long as 18 months, he said.
Honeywell International Inc., the maker of cockpit controls and thermostats, is forecasting 2013 economic growth in China may decelerate to less than 7 percent, the slowest pace since 1990. The euro area will remain in recession next year, Dave Anderson, the chief financial officer of the Morris Township, New Jersey-based manufacturer, said Oct. 19.
Bets on higher crude-oil prices rose 3.3 percent to 166,278 contracts as of Oct. 16, CFTC data show. Futures in New York dropped 2 percent last week, the fourth loss in five weeks.
Gold holdings fell to 184,404 contracts, the lowest since Sept. 18. Prices in New York tumbled 2 percent last week, the biggest drop since June. Improving U.S. economic growth has reduced pressure on the Fed to enact more stimulus measures after announcing a third round of debt-buying last month.
A measure of 11 U.S. farm goods showed speculators lowered bullish bets in agricultural commodities by 7 percent to 616,508 contracts. That’s the sixth straight decline, the longest stretch in a year. Wagers on corn dropped 1.5 percent to the lowest since July 17, while those for soybean lost 5.5 percent to the least since March 6.
Planting of corn, soybean and wheat in the U.S., the world’s biggest exporter of all three crops, will increase next year, Informa Economics Inc., the Memphis, Tennessee-based researcher, said in a report on Oct. 19. Prices surged this year after the worst drought in 56 years reduced production. Corn jumped 19 percent last quarter.
McDonald’s Corp., the world’s largest restaurant chain by sales, expects U.S. commodity-cost increases to be smaller in 2013 than this year’s gains of as much as 4.5 percent, Peter J. Bensen, the chief financial officer of the Oak Brook, Illinois-based, company said on a conference call with analysts Oct. 19.
“China’s economy is still slowing,” said Adrian Day, who manages $170 million of assets as president of Adrian Day Asset Managmenet in Annapolis, Maryland. “In Europe, they’ve made a lot of noise, but not a lot of action. The market is waiting for something to happen. We had a strong rally, and there’s nothing to keep it going.”