Hedge funds got more bullish on gold for a fourth straight week before prices capped the longest rally in 16 months on mounting global growth concerns.
The net-long position in gold climbed 0.2 percent to 43,353 futures and options in the week ended Jan. 21, U.S. Commodity Futures Trading Commission data show. Long wagers declined 0.2 percent, while short bets slid 0.4 percent. Net-bullish holdings across 18 U.S.-traded commodities increased 5.6 percent, led by natural gas and copper.
Gold climbed for five consecutive weeks, the longest streak since September 2012. Almost $160 billion was wiped off the value of global shares last week as emerging-market equities tumbled the most in two months on signs of slowing expansion in China and as Argentina devalued its currency. There’s still “more pain to come” for bullion investors after prices tumbled 28 percent last year, the most since 1981, Morgan Stanley analysts said in a report Jan. 22.
“There are a couple things in play right now, with gold bouncing up after being oversold last year and stress in the emerging markets causing a reallocation of assets toward safe havens,” Walter ’Bucky’ Hellwig, who helps manage $17 billion of assets at BB&T Wealth Management in Birmingham, Alabama, said in a telephone interview. “The question is whether this is a short-term phenomenon, or whether the trend will continue.”
Futures in New York rose 1 percent last week to $1,264.50 an ounce and extended that rally today, climbing as much as 1.2 percent to $1,280.10, the highest level since Nov. 18. The Standard & Poor’s GSCI Spot Index of 24 raw materials gained 1.5 percent last week as the MSCI All-Country World index of equities dropped 2.3 percent. The MSCI Emerging Markets Index fell 2.3 percent, the most since Nov. 8. The Bloomberg Dollar Spot Index, a gauge against 10 major trading partners, slid 0.4 percent. The Bloomberg Treasury Bond Index gained 0.5 percent.
Chinese manufacturing probably contracted in January for the first time in six months, a preliminary reading for an HSBC Holdings Plc and Markit Economics index showed Jan. 23. Argentina allowed its peso to depreciate the most since 2002 on Jan. 23 in a bid to arrest a decline in foreign reserves. A Bloomberg gauge tracking 20 emerging-market currencies fell to the lowest since April 2009 today.
Global mints are manufacturing bullion coins as fast as they can to meet climbing demand. Austria’s Muenze Oesterreich AG mint hired extra employees and added a third eight-hour shift to run 24 hours a day. Purchases of bullion coins at Australia’s Perth Mint rose 20 percent this year through Jan. 20 from a year earlier. Sales by the U.S. Mint are set for the best month since April, when the metal plunged into a bear market.
Morgan Stanley cut its 2014 gold target 12 percent to $1,160 and the prediction for 2015 was reduced 13 percent to $1,138, analysts Peter Richardson and Joel Crane wrote in a report Jan. 22. Gold remains under pressure as the world recovery gains traction, they said. The International Monetary Fund raised its forecast for global growth this year to 3.7 percent, from an October estimate of 3.6 percent, citing quickening expansions in the U.S. and U.K.
Goldman Sachs Group Inc. sees prices at $1,050 in the next 12 months as the U.S. central bank pares stimulus, analysts led by Jeffrey Currie, the head of commodities research, said in a report Jan. 12. The Federal Reserve, which said in December it would trim its monthly asset purchases to $75 billion from $85 billion, will probably keep cutting bond buying by $10 billion at each policy meeting, according to a Bloomberg survey of economists on Jan. 10. Policy makers meet this week.
“With stimulus being drawn down, I don’t see too much upside motivation for gold,” Donald Selkin, who helps manage about $3 billion as the New York-based chief market strategist at National Securities Corp., said in a telephone interview. “The problem for gold is that whenever it seems to get some steam, investors sell it off. It’s been confined to a narrow range.”
Investor holdings through exchange-traded products fell 33 percent in the past year, erasing $69.1 billion from the value of the funds, data compiled by Bloomberg show. Gold rose 70 percent from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system. Futures have plunged 34 percent from a record $1,923.70 in September 2011.
Bullish bets on crude oil added 0.3 percent, government data show. Prices climbed 2.4 percent last week, a second straight gain. Net-long wagers on four U.S. natural gas contracts rose 4.3 percent to the highest this year. Futures jumped above $5 per million British thermal units last week for the first time since 2010 as forecasts showed U.S. arctic weather persisting through early February.
Speculators raised their net-long position in copper by 20 percent to 30,689 contracts, the first gain in three weeks. In the first 10 months of 2013, refined supplies fell short of demand by 230,000 metric tons, the International Copper Study Group said Jan. 22.
A measure of speculative positions across 11 agricultural products rose 4.8 percent to a four-week high, the CFTC data show. Investors were less bearish on corn, trimming their net-short position to 59,325 contracts, from 63,931 a week earlier. Bullish soybean holdings climbed for a second week.
Cattle wagers rose 4 percent to 123,655 contracts, the highest since October 2010. Futures in Chicago extended a rally to an all-time high on Jan. 22. Cocoa holdings slid 0.6 percent to 69,398 contracts. Prices in New York jumped 3.4 percent last week, the biggest rally in three months. In the season started Oct. 1, world production will trail demand by 105,000 metric tons, according to Kona Haque, a commodities analyst at Macquarie Group Ltd. in London.
“Demand continues to rise for many commodities,” said Claudio Oliveira, who helps oversee about $80 million in assets as the head of trading at Castlestone Management LLC in New York. Grains and livestock will benefit from growing populations and incomes, and “there are opportunities in products like cocoa right now, especially if the outlook for shortages continues.”