Speculators got less bullish on gold, selling long contracts at the fastest pace this year as prices fell the most in almost three months on prospects for less central-bank stimulus. Goldman Sachs Group Inc. said the retreat has further to go.
The net-long position held by hedge funds and other large speculators fell 16 percent to 84,929 futures and options in the week ended Sept. 10, U.S. Commodity Futures Trading Commission data show. Long holdings dropped 10 percent, the most since December, and short bets increased 9.8 percent. The net-bullish position across 18 U.S.-traded commodities slid 4.1 percent, with investors adding to bearish wagers on wheat and corn.
Gold resumed its retreat, heading for the first annual loss in 13 years, after coming within 3 percentage points of a bull market on the threat of military strikes on Syria. The U.S. and Russia agreed Sept. 14 on a plan for Syria to surrender its chemical weapons. Speculation Federal Reserve Vice Chairman Janet Yellen will become the next head of the central bank after former Treasury Secretary Lawrence Summers withdrew his name may support gold this week before a Fed meeting that economists expect will curb stimulus.
“The market is trying to find a price for gold in an environment where the Fed begins cutting back its assistance,” said Donald Selkin, who helps manage about $3 billion of assets as chief market strategist at National Securities Corp. in New York. “The temporary sparkle that we had seen because of Syria is disappearing.”
Futures slumped 5.6 percent to $1,308.60 an ounce last week in New York. Gold retreated 21 percent this year as some investors lost faith in the metal as a store of value, erasing almost $59 billion from the value of exchange-traded products and spurring at least $26 billion in writedowns by mining companies. Fifteen analysts surveyed by Bloomberg expected prices to fall again this week, with seven bullish and three neutral. It was the most bearish survey since June 21.
The Standard & Poor’s GSCI gauge of 24 commodities declined 2.2 percent last week, the most since June, led by gold and a 9.1 percent drop in silver that was the biggest loss since June. The MSCI All-Country World Index of equities climbed 2.2 percent and the Bloomberg Dollar Index, a gauge against 10 major trading partners, slipped 0.7 percent. The Bloomberg U.S. Treasury Bond Index rose 0.3 percent. Gold futures rose 0.7 percent today to settle at $1,317.80.
Summers withdrew his nomination to lead the Fed, before a two-day policy meeting starting tomorrow at which the central bank is forecast to reduce monthly bond purchases, known as quantitative easing, that have boosted demand for gold as a hedge against inflation. Summers would tighten Fed policy more than Yellen, who was his main rival to replace Chairman Ben S. Bernanke, according to a Bloomberg Global Poll of investors, analysts and traders last week.
The Fed will decide to cut monthly purchases of Treasuries to $35 billion from $45 billion and keep mortgage-bond buying at $40 billion at its meeting starting Sept. 17, according to the median estimate of 34 economists surveyed by Bloomberg Sept. 6.
Bullion rose 70 percent from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system by purchasing debt, increasing concern that inflation would accelerate. In fact, U.S. consumer prices grew at a 2 percent rate in July, compared with a 10-year average of 2.4 percent.
Gold may drop below $1,000 for the first time since October 2009 as the Fed withdraws stimulus and the economy improves, Jeffrey Currie, Goldman’s head of commodities research, said in a Bloomberg Television interview Sept. 13. Currie issued a sell recommendation for bullion on April 10, before prices plunged 13 percent in a two-session slump ended April 15 that sent the metal into a bear market.
Societe Generale SA and ABN Amro Group NV are also predicting more declines after prices fell 31 percent from a record $1,923.70 reached in September 2011.
Gold may stabilize near $1,200 in the longer term because of production costs, Goldman’s Currie said. Many producers would be forced to shutter output if prices stayed below that level for long, Alberto Calderon, adviser to the chief executive officer at BHP Billiton Ltd. and a former executive of the company, said in a Bloomberg Television interview Sept. 13. BHP is the world’s largest mining company.
Prices jumped 6.3 percent in August on concern that military action against Syria would disrupt oil supplies from the Middle East, raising energy costs and stoking inflation. The U.S. remains “prepared to act” if diplomacy fails to persuade Syrian President Bashar al-Assad to give up his chemical arms stockpile, President Barack Obama said.
“There’s still very high likelihood of geopolitical risks as things in the Middle East are not getting better, and there’s a strong chance of a military conflict,” said Jeff Sica, who helps oversee more than $1 billion as the president of Sica Wealth Management in Morristown, New Jersey. “As long as physical demand for gold doesn’t trail off dramatically, we’ll have price stability.”
Gold imports by India, the biggest buyer, will probably rebound, helping to keep bullion demand from Asia strong, Standard Chartered Plc said in report Sept. 12. Billionaire hedge-fund manager John Paulson’s PFR Gold Fund rose 12 percent in August, according to a person familiar with the matter who asked not to be identified because the information is private. The gain pares the $400 million fund’s loss this year to 55 percent.
Money managers added $264 million to gold funds in the week ended Sept. 11, according to Simon Ringrose, the managing director of sales for Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Total inflows for commodity funds were $582 million, according to EPFR.
Bullish bets on crude oil fell 5.2 percent to 290,058 contracts, the lowest since July 9, the CFTC data show. West Texas Intermediate slid 2.1 percent to $108.21 a barrel last week, the biggest drop since July 26, as Syrian tensions eased. The nation borders Iraq and is near Iran, countries that together hold almost a fifth of the output capacity from the Organization of Petroleum Exporting Countries, according to data compiled by Bloomberg.
Investors cut bullish copper holdings by 76 percent to 2,007 contracts. Futures slid 1.8 percent in New York last week. Supply will outpace demand by 150,000 metric tons this year, and the surplus will expand to 620,000 tons in 2014, Societe Generale said in a Sept. 13 report.
A measure of net-long positions across 11 agricultural products gained 7.5 percent to 300,032 futures and options. The S&P’s Agriculture Index of eight commodities tumbled 18 percent this year, heading for the worst annual decline since 2008.
Money managers expanded their net-short position in corn to 64,686 contracts, from 64,506 a week earlier. Investors have bet on lower price since June as the U.S. government forecasts a record domestic crop. The net-bearish holding in wheat reached 47,008 futures and options, from 38,390.
The U.S. corn harvest, the world’s largest, will expand 28 percent from a year earlier, helping to send global inventories to a 12-year high, the Department of Agriculture said Sept. 12. The USDA raised its estimate for global wheat production 0.5 percent from last month to a record 708.89 million tons.
The S&P GSCI gauge surged 92 percent from the end of 2008 through June 2011 as the Fed’s unprecedented money printing helped revive economic growth and demand for metals, grains and energy. The Bloomberg Dollar Index fell 11 percent.
“Supply is going to be really robust, and we don’t see any disruption as the harvest will be especially strong,” said Jim Russell, a senior equity strategist at U.S. Bank Wealth Management, which manages about $112 billion. “The Fed tapering, if it moves forward as anticipated, will strengthen the value of the U.S. dollar, and that should create a little bit of price weakness for all commodities.”