Hedge Funds Cut Bullish Gold Bets on Fed Stimulus Outlook
Hedge funds cut bullish gold bets, adding the most short contracts in four weeks, as U.S. economic growth fuels speculation the Federal Reserve will trim stimulus. Holdings across commodities dropped the most since April.
The net position in gold slid 13 percent to 87,689 futures and options in the week ended Nov. 5, U.S. Commodity Futures Trading Commission data show. Short bets jumped 37 percent, the most since Oct. 15, and long wagers fell 4.9 percent. Combined holdings across 18 U.S.-traded commodities dropped 20 percent to 658,263 contracts as investors cut cotton positions to the lowest this year and crude-oil bets to the fewest since June.
Gold has tumbled 24 percent this year, heading for the biggest drop since 1981, as some investors lost faith in the metal as a store of value. U.S. payrolls in October rose more than forecast, and the economy expanded at a faster pace than estimated last quarter, government reports showed last week, reviving concern the Fed may curb bond buying that helped fuel growth. Barclays Plc and Credit Suisse AG are predicting lower commodity prices as supplies increase.
The “U.S. economy is showing ample signs that it is growing, and that means the Fed will start looking at tapering either end of this year or early next,” said Dan Heckman, a Kansas City-based national consultant for U.S. Bank Wealth Management, which oversees about $112 billion. “We are underweight on commodities as the support of stimulus will go away at a time when supplies are rising and worries about Europe are increasing.”
Futures tumbled 2.2 percent to $1,284.60 an ounce last week on the Comex in New York. Prices, which slumped into a bear market in April, are poised for the first annual drop since 2000. Futures fell 0.3 percent to $1,281.10 today.
From December 2008 to June 2011, gold rose 70 percent as the Fed pumped more than $2 trillion into the financial system by purchasing debt. Fed Bank of Atlanta President Dennis Lockhart said Oct. 8 that the central bank will consider reducing its $85 billion of monthly bond buying at the December policy meeting.
The Standard & Poor’s GSCI Spot Index (BUSY) of 24 commodities fell 0.4 percent last week, matching the slide in the MSCI All-Country World Index of equities. The Bloomberg Dollar Index, a gauge against 10 major trading partners, rose 0.6 percent, and the Bloomberg U.S. Treasury Bond Index lost 0.5 percent.
Bullion will probably hold near $1,300 until year-end and then decline to $1,050 at the end of 2014 as an improving U.S. economy prompts less stimulus, Goldman Sachs Group Inc. wrote in a report on Oct. 18.
The drop in prices has wiped $66.8 billion from the value of exchange-traded products this year. Hedge-fund manager John Paulson’s PFR Gold Fund fell 16 percent in September, according to a report to investors obtained by Bloomberg News on Oct. 21. Paulson, who in the second quarter sold 53 percent of his stake in the SPDR Gold Trust, the largest gold ETP, is still the biggest holder. His company asserted in a report that the risk of high inflation remains in the future, triggered by the Fed’s asset purchases.
Expectations of long-term inflation, coupled with risks of growth slipping during the fourth quarter because of the 16-day government shutdown last month, may push prices higher, according to Jeff Sica of Sica Wealth Management in Morristown, New Jersey.
“The economy has not completely recovered, so we may see some safe-haven buying,” said Sica, who helps oversee more than $1 billion. “Also, the long-term buyers will be picking up gold as the easy money policy adopted globally will push inflation higher.”
The environment for commodities has “deteriorated again” after improvement in the third quarter, as supply disruptions dissipate, Chinese economic data softens and near-month premiums ease in markets including oil, Barclay’s analysts led by Suki Cooper said in a report. The “subdued tone” will probably persist into year-end, they said.
Credit Suisse, in a note on Nov. 4 said, the rebound in global industrial production since the fourth quarter of 2011 is peaking.
The European Central Bank unexpectedly reduced its main refinance rate to a record on Nov. 7.
Sixteen analysts surveyed by Bloomberg expected gold prices to advance this week, with 11 bearish and five neutral.
Gold purchases in India, the biggest consumer, probably will fall in this year’s festival season, and sales of coins and bars may decline to as little as 25 percent of the year-earlier total, the Gems & Jewellery Trade Federation said on Oct. 30. Consumption in India, which imports almost all the bullion it uses, accounted for 20 percent of global demand in 2012, the World Gold Council estimates.
The U.S. Mint sold 764,500 ounces of American Eagle coins as of Nov. 8, compared with 753,000 ounces in all of 2012, according to data on the mint’s website. The mint sold 48,500 ounces in October, 77 percent less than in April, when they surged to a 40-month high.
Shipments to China from Hong Kong fell for a second month through September after the premium to take immediate delivery declined, indicating waning physical demand in the nation poised to become the largest consumer.
Net imports, after deducting flows from China into Hong Kong, were 109.4 metric tons in September, from 110.2 tons a month earlier, according to Bloomberg calculations based on data e-mailed from the Hong Kong Census and Statistics Department. While the amount has more than doubled to 826 tons in the first nine months of the year, Credit Suisse said in a note on Nov. 7 that demand from China has peaked for the year.
Precious-metals assets under management fell to $130 billion in September from $137 billion in August, and commodity assets fell to $343 billion from $353 billion, Barclays said Nov. 6.
The CFTC report was the first to be released at the regular time since Sept. 27. Three weeks of data were delayed by the 16-day federal government shutdown that ended Oct. 17
Bullish bets on crude oil fell 4.1 percent to 233,850 contracts, the lowest since June, the CFTC data show. West Texas Intermediate was little changed for the week, down 1 cent to $94.60 a barrel amid signs of expanding inventories.
U.S. supplies of crude oil increased 1.58 million barrels to 385.4 million in the week ended Nov. 1, the most since June 21, the Energy Information Administration reported on Nov. 6.
Investors cut bullish copper holdings by 52 percent to 4,954 contracts, CFTC data show. Futures slid 1.3 percent in New York last week to $3.254 a pound on the Comex.
A measure of net-long positions across 11 agricultural products plunged 17 percent to 362,520 futures and options, according to the CFTC. The S&P’s Agriculture Index of eight commodities tumbled 19 percent this year.
Money managers held a net-short position of 178,720 contract in corn, down from a record 180,627 a week earlier. Investors have bet on lower prices since June as the U.S. government forecast the biggest domestic crop ever. Farmers will collect a record harvest 13.989 billion bushels of corn this year, the U.S. Department of Agriculture said on Nov. 8.
Cotton holdings fell 37 percent to 9,545 contracts, the lowest since Dec. 11 and down 88 percent from this year’s peak on Aug. 20.
“Commodities will struggle to find a balance with supplies rising as demand remains stable and, in some cases, falling,” said Paul Christopher, the St. Louis-based chief international strategist at Wells Fargo Advisors LLC, which manages $1.3 trillion. “We are advising clients to reduce their long-term allocation to commodities.”
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