Hedge Funds’ Bullish Gold Bets Defy Goldman Outlook: Commodities

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Hedge Funds’ Bullish Gold Bets Defy Goldman Outlook
The net-long position in gold rose 31 percent to 104,532 futures and options contracts in the week ended Dec. 9, according to U.S. Photographer: Kiyoshi Ota/Bloomberg

Hedge funds are the most bullish on gold since August, defying Goldman Sachs Group Inc.’s prediction that the rally in prices will fade.

The net-long position in New York futures and options climbed for a fourth week, the longest stretch of increases since July, government data show. Futures jumped 2.7 percent last week, the most since June, as a plunge in global equities erased about $2 trillion from the value of stocks.

Holdings in exchange-traded funds backed by gold rose for the first time since October as investors sought protection from the rout. While prices are heading for a second consecutive month of gains, Jeffrey Currie, Goldman’s head of commodity research, says bullion will drop as the U.S. economy improves.

“We are seeing safety trade toward gold,” Peter Sorrentino, a senior vice president who helps oversee $1.8 billion at Huntington Asset Advisors in Cincinnati, said Dec. 11. “Investors have begun to see that the equity market is priced for a scenario that may not come to pass. That’s led some to flee the market and use gold as a storehouse.”

The net-long position in gold rose 31 percent to 104,532 futures and options contracts in the week ended Dec. 9, according to U.S. Commodity Futures Trading Commission data. Short holdings tumbled 22 percent, the most since Aug. 12.

Futures Rally

Futures slipped 1.1 percent to $1,209.10 an ounce at 9:21 a.m. on the Comex in New York. The Bloomberg Commodity Index declined 1.3 percent last week as the Bloomberg Dollar Index slid 0.6 percent. The MSCI All-Country World Index of equities fell 3.8 percent, the most since May 2012.

Holdings in global bullion ETPs increased by 2 metric tons, snapping seven weeks of losses. Assets in the SPDR Gold Trust, the biggest such fund, jumped the most since July.

Gold has climbed 7 percent since reaching a four-year low of $1,130.40 on Nov. 7 on signs that central banks in China, Europe and Japan will add to stimulus efforts in a bid to boost growth. More evidence of slowing global economies would further support gold as investors seek a haven, said Frances Hudson, an Edinburgh-based global thematic strategist at Standard Life Investments Ltd., which oversees $334 billion.

Money Supplies

Gold surged 70 percent from December 2008 to June 2011 as central banks increased money supplies on an unprecedented scale, spurring concerns that inflation will accelerate. The metal tumbled 28 percent in 2013, the biggest drop in three decades, amid gains for the U.S. economy.

The Thomson Reuters/University of Michigan preliminary December index of consumer sentiment increased to the highest since January 2007, figures showed Dec. 12. Federal Reserve policy makers will meet this week as officials debate the timing of the first interest-rate increase in eight years.

“The stronger U.S. economy and the ability for the Fed to be able to begin to pursue a less accommodative monetary policy are the real drivers of gold,” Goldman’s Currie said Dec. 9. “Gold will likely continue to slowly grind lower next year,” he said, reiterating a forecast for prices to drop to $1,050 in 12 months.

Rising interest rates reduce gold’s allure because the metal generally offers investors returns only through price gains. U.S. inflation expectations, measured by the five-year Treasury break-even rate, fell 38 percent this year, set for the biggest slump since 2008.

Commodity Wagers

Bets on higher oil prices climbed 3.7 percent to 191,268 contracts before futures tumbled to a five-year low, CFTC data show. West Texas Intermediate, the U.S. benchmark, slumped 41 percent this year, signaling stable consumer costs and cutting demand for gold as a hedge against inflation.

A measure of net-long positions across 11 agricultural commodities jumped 13 percent to 499,354 contracts, the biggest gain in five weeks.

Investors are betting on gains for wheat prices for the first time since June. Net-bullish wagers on corn climbed 17 percent to 230,194 contracts, the highest since May. U.S. production of ethanol, a gasoline additive made from the grain, has reached a record, government figures show.

“We have seen strong export numbers, and then on the ethanol side another record week of production,” Chris Narayanan, the head of agricultural research at Societe Generale SA in New York, said Dec. 11. “Demand continues, and that’s keeping prices supported.”

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