Gold Leads Commodities ‘Mess’ That Has Many Investors Smarting

Updated on
Commodities Rout Deepens

Pity the commodity investor.

The Bloomberg Commodities Index dropped to a 13-year low Monday, weaker than after the banking meltdown of 2008 and the euro-zone crisis of 2012. From oil to copper to sugar, little has escaped the rout in the year’s worst-performing asset class.

“Commodities are a mess,” Walter “Bucky” Hellwig, who helps manage $17 billion at BB&T Wealth Management in Birmingham, Alabama, said in a telephone interview. “We are not looking to add to positions.”

Gold, the most heavily-weighted commodity in the index, is the latest to get hit hard, socked by a stronger dollar and concern about a slowdown in China. During a stretch of about 15 minutes in Asian trading hours Monday, gold prices plunged by the most in two years.

The drop will smart investors like Paulson & Co., where billionaire hedge fund manager John Paulson maintained his stake in the largest gold exchange-traded fund during the first three months of the year as prices climbed briefly to $1,300.

Armel Leslie, a Paulson spokesman with Peppercomm Inc., declined to comment. Paulson’s holdings of the gold shares aren’t a directional bet on the currency. The firm offers clients the ability to invest in a way that represents an investment in bullion, using the exchange-traded gold fund as a proxy, rather than in U.S. dollars.

$2 Billion Erased

About $2 billion was erased from the value of exchange-traded products tracking gold, silver, platinum and palladium on Monday. Investors pulled about $530 million from exchange-traded funds tracking commodities last week, or almost 1 percent of the funds’ market value. Citigroup Inc. analyst Aakash Doshi estimates that $2.3 billion was pulled from investments linked to commodity indexes in the week ended July 14, bringing total withdrawals since June 30 to $2.8 billion.

Hedge funds and other money managers are the least bullish on gold since government data begins in 2006.

Commodities producers led declines in U.S. equity markets Monday. Newmont Mining Corp., the largest U.S. gold producer, was the worst performer on the Standard & Poor’s 500 Index, dropping 12 percent in the biggest one-day drop in more than six years. Gold in New York added 0.1 percent to $1,107.70 an ounce by 10:09 a.m. in London, after an eight-day decline that was the longest run since 2009.

The Bloomberg Commodity Index of 22 raw materials was up 0.2 percent at 96.4062, after tumbling 1.4 percent on Monday to the lowest since June 2002.

Of course, lower prices aren’t bad for everyone. The Newedge CTA Index, which tracks daily returns for the 20 largest commodity trading advisers, jumped 2 percent last week.

For more, read this QuickTake: The Rise and Fall of Gold

Before it's here, it's on the Bloomberg Terminal. LEARN MORE