Hedge Funds Raise Gold Wagers as Yamada Sees $1,000: Commodities

Hedge funds raised their bullish gold bets to a six-week high, splitting with analysts at Technical Research Advisors LLC and Goldman Sachs Group Inc. who are predicting more declines after last year’s rout.

The net-long position in gold jumped 19 percent to 34,104 futures and options in the week ended Dec. 31, U.S. Commodity Futures Trading Commission data show. Short holdings slid 4.6 percent to 72,571, the lowest since Nov. 19. Net-bullish holdings across 18 U.S.-traded commodities fell for the first time in six weeks as investors became the most bearish on sugar since September.

Gold tumbled 28 percent in 2013, the first decline in 13 years and the biggest since 1981, after some investors lost faith in the metal as a store of value. The Federal Reserve on Dec. 18 cut the pace of its monthly bond purchases. Bullion is poised to fall another 19 percent in the coming months to $1,000 an ounce, said Technical Research’s Louise Yamada, who’s the former head of technical research at Citigroup Inc.

“With gold, in the short-term, we’re being pulled in multiple directions,” said Michael Cuggino, who manages about $10 billion of assets at Permanent Portfolio Family of Funds Inc. in San Francisco. “There were sellers trying to get out in front of the tapering. Physical demand is OK, but not strong. You also have increasing economic activity, which could begin to accelerate inflation.”

Price Slump

Futures in New York climbed to $1,247.70 yesterday, the highest since Dec. 16, as last year’s rout made the metal attractive to buyers of coins, bars and jewelry. Prices slumped 25 percent in the past 12 months, as the Standard & Poor’s GSCI Spot Index of 24 raw materials slid 5.2 percent, while the MSCI All-Country World index of equities advanced 16 percent. The Bloomberg Dollar Index, a gauge against 10 major trading partners, rose 3.7 percent. The Bloomberg Treasury Bond Index fell 2.5 percent.

Bullion fell to $1,181.40 on Dec. 31, within $2 of the 2013 low reached in June. Prices rebounded partly as some investors closed out bearish wagers, Cuggino said. Fifteen analysts surveyed by Bloomberg News expect gold to rise this week, two are bearish and four neutral, the highest proportion of bulls since December 2012.

While short-term rallies may occur, a head & shoulder pattern signals that gold will extend its declines, Yamada of Technical Research said. A drop to $1,000 would mark the lowest intraday price since October 2009.

‘Very Weak’

“The market still looks very weak,” Yamada said in a telephone interview from New York. “There is potential for further declines, and it’s too early to say if the market has a double bottom in place.”

Prices are “likely to grind lower” through 2014, Jeffrey Currie, the head of commodities research at Goldman Sachs in New York, said in a telephone interview Dec. 19. The metal will reach $1,050 by the end of 2014, the bank said in a Nov. 20 report.

Gold surged more than 500 percent in the 12 straight years of gains through 2012 as the dollar weakened. The rally accelerated from December 2008 to June 2011 as the Fed expanded its balance sheet through debt purchases and held borrowing costs at a record low in a bid to revive growth amid a U.S. recession. Bullion reached a record $1,923.70 in September 2011.

Fed Taper

Fed officials said Dec. 18 they would trim monthly purchases of bonds to $75 billion from $85 billion starting this month. The central bank will probably reduce its quantitative easing in $10 billion increments over the next seven meetings, before ending the program in December, according to the median estimate of economists surveyed by Bloomberg on Dec. 19.

“Gold is at a bit of a crossroads here,” said John Kinsey, who helps manage about C$1 billion ($935 million) at Caldwell Securities Ltd. in Toronto. “Bullion still seems to be in demand for jewelry and different things. We’re cautiously optimistic. If it breaks through this current level near $1,200, that would be very bad.”

Assets in exchange-traded products backed by bullion fell 33 percent since the end of 2012 to the lowest since October 2009. The removals, along with slumping prices, erased $71.9 billion in the value of the assets. Billionaire John Paulson, the largest holder in the SPDR Gold Trust, the biggest ETP, said on Nov. 20 that he personally wouldn’t invest more money into his gold fund because it’s not clear when inflation will quicken.

Crude Bets

Bullish bets on crude oil climbed 2.4 percent to 270,386 contracts, the highest since September, government data show. The CFTC data, regularly released on Fridays, were delayed last week because of the New Year holiday.

Freezing temperatures across the U.S. may ignite energy demand this week as consumers use more fuel to heat their homes. The U.S., the world’s biggest oil user, consumed about 18.6 million barrels a day of oil in 2012, or about one-fifth of the global total, according to BP Plc’s Statistical Review of World Energy.

Speculators increased their net-long position in copper by 21 percent to 35,635 contracts. That’s the most bullish outlook since February 2011. Stockpiles monitored by the London Metal Exchange are at the lowest in almost a year.

A measure of speculative positions across 11 agricultural products fell 16 percent to 203,249 contracts, the CFTC data show. That’s the lowest since August. Investors are betting on prices declines for corn, coffee, wheat, soybean oil and sugar.

Record Harvests

Record harvests from India to the U.S. have expanded supplies. Morgan Stanley and Rabobank International lowered their outlooks on farm goods last month. Corn growers in the U.S. probably harvested a record 13.989 billion bushels in 2013, and global production climbed 12 percent to an all-time high, the U.S. Department of Agriculture said Dec. 10.

Investors are holding a net-short position in corn of 94,812 contracts and have been bearish on the grain since July. Prices in Chicago tumbled about 50 percent from an all-time high in August 2012.

Net-short wagers in wheat increased to 71,468 contracts from 69,832 a week earlier. The holdings are within 0.3 percent of a record bearish position reached Dec. 17. U.S. winter-wheat acreage rose to the highest in six years, according to a survey of as many as 18 analysts by Bloomberg News. The USDA will release its estimates on Jan. 10.

“I don’t really see a lot of investors clamoring to want to own commodities in a major way,” Michael Strauss, who helps oversee about $26 billion as chief investment strategist at Commonfund in Wilton, Connecticut, said in a telephone interview. “It’s hard to argue on a short-term basis that it’s the place of investment opportunity. There’s still excess capacity in a lot of areas.”