Gold Fever Fading as $4 Billion Erased From Funds: Commodities

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John Paulson
John Paulson, the billionaire hedge fund manager, also is showing less enthusiasm for the metal these days. Photographer: Amanda Gordon/Bloomberg

Judging by the barometer of hedge-fund interest, there’s less to get excited about in gold these days.

Even as Greece battled with its creditors to avoid default and keep the euro zone intact, speculators retreated from the metal used as a haven from economic and political upheaval. Money managers cut their net-long wagers by the most in 15 weeks, U.S. government data show.

The strengthening dollar and record valuations for global equities are diminishing bullion’s appeal as a store of wealth. As the combined market capitalization of stocks thundered through $67 trillion last week and the dollar traded at its highest level in at least a decade, this month’s losses in exchange-traded products backed by gold reached almost $4 billion.

“Longer-term, we’re still negative on gold,” Jack Ablin, the Chicago-based chief investment officer at BMO Private Bank, which oversees about $66 billion, said by phone Feb. 19. “I view it as insurance. If nothing happens, you should expect to lose money on it. Most of the time, nothing happens. As a risk asset, I think equities are more attractive.”

The net-long position in gold tumbled 18 percent to 110,164 futures and options contracts in the week ended Feb. 17, according to U.S. Commodity Futures Trading Commission data. It was the third consecutive decline, the longest streak since November. Short holdings surged 44 percent, the most since August.

Paulson Holdings

Futures lost 1.8 percent last week to $1,204.90 an ounce on the Comex in New York, while the Bloomberg Commodity Index declined 1.7 percent. The Bloomberg Dollar Spot Index climbed 0.4 percent. The S&P 500 Index of U.S. equities rose 0.6 percent and reached a record Feb. 20.

Emergency talks by euro-area finance ministers on Friday led to a provisional deal intended to keep aid flowing to Greece. Even before then, gold had failed to attract much buying, with holdings in global ETPs little changed last week at 1,671.8 metric tons, data compiled by Bloomberg show.

John Paulson, the billionaire hedge fund manager, also is showing less enthusiasm for the metal these days. The investor kept his stake in the world’s biggest ETP backed by bullion unchanged for a sixth straight quarter. As of Dec. 31, Paulson & Co. owned 10.23 million shares in the SPDR Gold Trust, a government filing showed last week. Each share represents about 0.096 of an ounce.

Gold Slump

Gold slumped 29 percent in the two years through 2014, the first consecutive annual declines since 1998, as equities surged and the U.S. economy gained traction. Futures fell 6 percent in February, heading for the first monthly drop since October.

Minutes from the Federal Reserve’s January meeting showed some policy makers argued for keeping interest rates near record lows for longer. The policy makers cited a strengthening dollar, international flash points from Greece to Ukraine and slow wage growth among reasons for delaying the first rate increase since 2006, according to the record released on Feb. 18. Higher borrowing costs cut gold’s allure because the metal generally offers returns only through price gains.

“Given the big drop we’ve had in the last month, I would certainly be bullish on gold,” Adrian Day, the president of Adrian Day Asset Management in Annapolis, Maryland, which oversees about $145 million, said by phone Feb. 19. “The Fed minutes were extremely positive. The longer the Fed goes on, the more difficult it is for them to raise interest rates, because increasingly, they’re waiting for perfect conditions.”

Crude Holdings

Net wagers across 18 U.S. traded commodities rose 15 percent to 584,669 contracts as of Feb. 17, the first gain this year, CFTC data show. Crude holdings increased for the first time in five weeks before prices capped a weekly loss on expanding U.S. inventories.

A measure of net-long positions across 11 agricultural commodities jumped 45 percent to 279,963 contracts, the government data show. The Bloomberg Agriculture Index of eight farm products fell 1.5 percent last week.

Investors trimmed the hog net-long position for the first time in four weeks, with wagers sliding 8.3 percent to 33,570 contracts. Futures in Chicago touched a five-year low on Feb. 18. U.S. pork output in 2015 will reach an all-time high, the government forecasts.

Speculators got more bearish on wheat, holding a net-short bet of 26,249 contracts. Egypt, the world’s largest importer, said it canceled a tender for U.S. grain Wednesday. The dollar climbed 15 percent against a basket of 10 currencies in the past year.

“With the strength of the U.S. dollar, as that continues, it’s going to put some pressure on the export markets,” Susan Dambekaln, a portfolio manager at Capital Innovations LLC in Pewaukee, Wisconsin, which oversees about $1 billion, said in a Feb. 20 interview. “For hogs, production levels have exceeded expectations, so we’re still seeing that affecting the market.”

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