Hedge funds extended their fastest exit from gold this year, cutting bullish gold wagers for a third week.
The net-long position in New York futures and options fell 14 percent, U.S. government data show. Holdings tumbled 49 percent over three weeks, the most since December. Assets in exchange-traded products backed by the metal dropped to the lowest since 2009, as the World Gold Council said third-quarter global demand was the weakest in almost five years.
While prices had their biggest two-day rally since June at the end of last week, gold is still down 15 percent from this year’s peak in March. Investors’ appetite for bullion has diminished as the dollar strengthened to a five-year high, the Federal Reserve moved closer to raising borrowing costs, U.S. equities reached records and inflation failed to accelerate.
“Gold has everything working against it,” Frances Hudson, an Edinburgh-based global thematic strategist at Standard Life Investments Ltd., which oversees $333.6 billion, said Nov. 13. “The strongest influence is the strengthening dollar, and that goes against all commodities. So, you have a backdrop of falling commodity prices, a strong dollar and equities, potential disinflation and some countries already in deflation.”
Futures fell 1.6 percent this year to $1,183.50 an ounce on the Comex in New York. The Bloomberg Commodity Index of 22 raw materials declined 7.1 percent in 2014 as the MSCI All-Country World Index of equities climbed 2.6 percent. The Bloomberg Dollar Spot Index gained 7.5 percent.
The net-long position in gold fell by 6,399 contracts to 38,673 futures and options in the week ended Nov. 11, according to U.S. Commodity Futures Trading Commission data published three days later. Short wagers climbed 3.6 percent.
Assets in the SPDR Gold Trust, the biggest bullion ETF, dropped 0.9 percent last week, a fourth straight decline. Paulson & Co., the fund’s biggest investor, reported no change in its holding last week for a fifth consecutive quarter.
John Paulson, the billionaire hedge fund manager, two years ago had more than 40 percent of his traded equities tied to gold. He told clients last year that he wouldn’t invest more money in his bullion fund because it’s not clear when inflation will accelerate.
Gold dropped to the lowest since 2010 on Nov. 7. The declines are luring buyers of physical metal, including in China and India, the two biggest global consumers.
India’s imports jumped to about 150 metric tons in October, the highest since the beginning of the fiscal year on April 1, from 24.5 tons a year earlier, people with knowledge of the matter said last week. Overseas purchases in the seven months through October surged 44 percent to about 640 tons. China’s gold imports from Hong Kong in September were the highest in five months.
Futures climbed 2.3 percent in the two days ended Nov. 14, the biggest such gain since June. A rebound in oil prices damped concern that inflation will remain low and revived demand for the precious metal as a store of wealth. St. Louis Fed President James Bullard said last week that inflation expectations have rebounded since October.
“With all the negativity, it seems that gold found a bottom,” Donald Selkin, the chief market strategist at New York-based National Securities Corp., which oversees about $3 billion, said Nov. 13. “Interest rates may not be raised as soon as people expect, and any signs of economic weakness could help gold. Also, these low prices might attract buying interest from central banks and jewelers.”
Gold surged 70 percent from December 2008 to June 2011 as central banks increased money supply on an unprecedented scale, spurring concern that inflation would quicken. The metal tumbled 28 percent in 2013, the biggest drop in three decades, after some investors lost faith in bullion as a store of value.
Net-bullish holdings across 18 U.S.-traded commodities rose 13 percent to 694,198 contracts as of Nov. 11, CFTC data show.
Investors got less bearish on copper, taking their net-short position to 1,664 contracts, compared with 5,961 contracts a week earlier.
A measure of net-long positions across 11 agriculture commodities jumped 11 percent to 464,709 contracts, the highest since mid-July.
Bullish bets on corn rose 14 percent as prices rose 7.3 percent last week, the most since July 2012. In a report Nov. 10, the U.S. government lowered its domestic crop estimate and said stockpiles at the end of the season will be 3.5 percent smaller than predicted last month.
A winter blast across the Midwest is increasing the outlook for grain demand as ranchers increase feed rations to help animals stay warm. Meat producers are struggling to expand herds and increase output, driving cattle and hog futures to all-time highs in 2014.
“People started to see that the yields were not as eye popping as they first thought, even though they are still pretty big,” Kelly Wiesbrock, a portfolio manager at Harvest Capital Strategies in San Francisco, which oversees $1.8 billion, said Nov. 13. “There will be more animals on the ground next year, as livestock guys start to rebuild herds.”
(An earlier version of this story was corrected to note in the 3rd paragraph that the dollar climbed to a five-year high.)