Hedge funds cut bullish bets on gold futures by the most in a month as holdings of physical bullion in exchange-traded funds dropped to the lowest since 2009.
Money managers’ net-long position contracted for the second time in three weeks in the five trading sessions ended May 13. The drop in bullion held through global ETPs extended into a ninth week, with about $6.9 billion of value erased.
Futures retreated 7.1 percent since reaching a six-month high in March and Goldman Sachs Group Inc. is among those who say the decline has further to go. Prices tumbled by the most in three decades in 2013 and U.S. equities reached records since then. Billionaire John Paulson held his gold holding in the first quarter, having told clients in November that he personally wouldn’t invest more money in his bullion fund.
“All the leading indicators would at least suggest solid and firming U.S. growth,” Sameer Samana, senior international strategist at Wells Fargo Advisors LLC in St. Louis, which oversees $1.4 trillion, said on May 15. “You could see some pretty sharp declines in gold into year-end. The fundamental case has been weakened.”
Futures climbed 0.5 percent to $1,293.40 an ounce last week on the Comex in New York. The Standard & Poor’s GSCI Spot Index of 24 commodities rose 0.9 percent, while the MSCI All-Country World Index of equities gained 0.3 percent. The Bloomberg Treasury Bond Index advanced 0.6 percent.
Today, gold futures rose less than 0.1 percent to $1,293.80.
The net-long position in the metal fell 8.3 percent to 94,329 futures and options as of May 13, U.S. Commodity Futures Trading Commission data show. Short holdings betting on a decline rose 10 percent to 31,283, the highest since February.
An accelerating U.S. economy means prices will fall to $1,050 in 12 months, Goldman Sachs forecasts. U.S. claims for jobless benefits reached the lowest since 2007 in the week ended May 10, Labor Department data show. Spending at American retailers held steady in April after a surge in the previous month that put economic growth on track to pick up in the second quarter, Commerce Department figures showed May 13.
Paulson & Co. held its gold position in the SPDR Gold Trust at 10.23 million shares in the first quarter, a government filing showed last week. The firm is the largest investor in the trust, the biggest exchange-traded product backed by gold, and has left its stake unchanged for three consecutive quarters.
While analysts at Goldman “remain bearish” on gold, “the uncertain outlook in Ukraine may continue to delay this move lower,” the bank said in a report May 13. Prices gained 8.1 percent this year after Russia annexed the Crimean peninsula in March, followed by clashes between pro-separatists and government forces in nearby eastern regions of Ukraine.
There’s already a “real war” between government forces and separatist fighters in Ukraine’s east and south, Russian Foreign Minister Sergei Lavrov said during a May 14 interview on Bloomberg Television. Bullion’s 30-day volatility slumped to the lowest in a year, and futures in May have traded within a range of about $44.
“Gold’s getting pulled in so many different directions,” Dan Denbow, portfolio manager at the $1 billion USAA Precious Metals and Minerals Fund in San Antonio, said May 16. The “upside” driver for the market “would be geopolitical risk,” he said. “Longer term, we’re probably still supportive of gold prices.”
In the five days through May 15, investors pulled almost $180 million from exchange-traded funds that track commodities, including a $35.7 million decline from those backed by precious metals.
Combined net-wagers across 18 U.S. traded commodities fell 2.5 percent to 1.59 million contracts as of May 13, the lowest in 11 weeks, the CFTC data show.
Bets on higher copper prices surged to 13,174 contracts, the highest since mid-January, from 698 a week earlier. Futures in New York advanced 2.1 percent last week. Stockpiles tracked by the London Metal Exchange fell for seven straight weeks to the lowest since 2008.
Wagers on rising oil prices gained 3.9 percent to 311,195 contracts. West Texas Intermediate climbed 2 percent in New York last week. Total U.S. petroleum consumption reached 19.4 million barrels a day, the most since January, the Energy Department’s statistical arm said May 14.
A measure of net-long positions across 11 agriculture products fell 2.7 percent to 996,733 contracts, the fewest in nine weeks. The S&P GSCI Agriculture Index of eight crops slid 3.2 percent last week, the largest drop since November.
Investors increased their bullish wheat holdings to the highest since November 2012. Prices fell for eight straight sessions through May 16, the longest slump in 10 months.
World wheat stockpiles will rise 0.5 percent to 187.4 million metric tons by June 1, 2015, the U.S. Department of Agriculture said May 9. Corn reserves before the 2015 harvest will rise for a fourth straight year, and combined grain supplies are projected at the highest since 2001, the agency forecasts.
“As we see the crop going in the ground, it’s potentially a huge crop again,” Shonda Warner, managing partner of Chess Ag Full Harvest Partners in Clarksdale, Mississippi, which oversees about $150 million, said May 15. “With any kind of normal weather, I think we should see prices move lower.”