Gold Bulls Lured Back for First Time in Two Months: CommoditiesMegan Durisin
Speculators added bullish gold bets for the first time in nine weeks as concern that global economic growth is slowing whipsawed equity markets.
The gain in the net-long position in New York gold futures and options snapped the longest run of reductions since 2010. Prices rose for a second week as global equities retreated to an eight-month low.
More than $3.2 trillion was wiped from the value of world shares this month as the International Monetary Fund cut its outlook for global growth in 2015. Federal Reserve policy makers identified slowing foreign economies as a risk to the U.S., spurring the fastest purchases of gold held through exchange-traded products since July.
“In the last couple of weeks, it has become a lot clearer that when money is flowing out of all asset classes, it does not seem to be flowing out of the gold market,” Eric Zoldan, a New York-based certified investment management analyst with JHS Capital Advisors, which oversees about $4 billion, said Oct. 16. “As the news flow continues to come out that the global economy and demand for things is deteriorating, it leads investors back to the asset class of gold.”
Futures increased 1.4 percent to $1,239 an ounce on the Comex in New York last week, after a 2.4 percent gain in the prior week that was the biggest since June. They climbed another 0.5 percent today. The Bloomberg Commodity Index of 22 raw materials fell 0.6 percent last week. The MSCI All-Country World Index of equities slipped 0.9 percent and reached the lowest since February on Oct. 16. The Bloomberg Dollar Spot Index dropped 0.6 percent.
The net-long position in gold jumped 39 percent to 51,994 futures and options contracts in the week ended Oct. 14, according to U.S. Commodity Futures Trading Commission data published three days later. That was the biggest gain since June 24. Short holdings betting on a decline shrank 1.7 percent.
About $2.1 billion was added to the value of global gold ETPs in the two weeks ended Oct. 17. Germany cut its growth outlook through 2015 and investor confidence dropped to the weakest in two years, separate reports showed Oct. 14.
Signs of slowing expansion have increased speculation that global central bankers will increase stimulus measures and the Fed will delay raising interest rates. The European Central Bank will start within days to purchase assets, Benoit Coeure, an executive board member, said Oct. 17. A day earlier, St. Louis Fed Bank President James Bullard said policy makers should consider delaying the end of its bond-purchase program.
Gold surged 70 percent from December 2008 to June 2011 as global central banks increased money supplies on an unprecedented scale, spurring inflation concerns.
Prices dropped 8.4 percent last quarter as investors bet an accelerating U.S. economy would prompt the Fed to raise borrowing costs. Confidence among American consumers rose this month to the highest in seven years, a private report showed Oct. 17. Rising rates reduce gold’s allure because the metal generally only offers investors returns through price gains, while a stronger dollar typically cuts demand for a store of value.
Investors pulled $1.1 billion from exchange-traded funds that track precious metals since the start of the year, while holdings in energy and industrial-metals funds have gained, data compiled by Bloomberg show. Bank of America Merrill Lynch last week lowered its 2015 outlook for bullion by 11 percent to $1,225. In 2013, gold fell 28 percent as some investors lost faith in the metal as a store of value.
“For gold, I think this is a short-term shift in market sentiment rather than a change in underlying fundamentals,” Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management which oversees about $120 billion, said Oct. 15. “Fundamentals in the U.S. remain good. Fundamentals in Europe are not great, but they are not horrible either. The economic story is not falling apart.”
Net-bullish holdings across 18 U.S.-traded commodities rose 12 percent to 488,295 contracts as of Oct. 14, the CFTC data show.
Speculators got less bearish on copper, taking their net-short position to 11,375 contracts from 21,249 a week earlier. Work began on more U.S. homes in September, the Commerce Department said Oct. 17. The Copper Development Association estimates that the average single-family home uses 439 pounds (199 kilograms) of the metal, needed for wires and plumbing.
A measure of net-long positions across 11 agriculture commodities jumped 21 percent to 287,942 contracts, the government data show. That was the biggest gain since March.
Bullish bets on coffee rose 15 percent to 50,032 contracts, the highest since March 2008. Arabica-coffee futures in New York surged 80 percent this year as drought hurt crops in Brazil, the world’s top producer.
The net-long position in corn increased 21 percent to 88,668 contracts, the biggest gain in seven months. Investors trimmed their bearish soybean holdings. The grain jumped 4.2 percent last week, the most since March 7, and the oilseed climbed 3.2 percent, the most since May.
Rains in parts of the U.S. Midwest have delayed harvesting, helping prices rebound. On Oct. 1, corn reached a five-year low, and soybeans touched the lowest since 2010. Both crops are forecast by the government to reach a record this year.
“In the case of corn and soybeans, they probably have bottomed here for a while,” Ashmead Pringle, the president of Atlanta-based GreenHaven Commodity Services, whose Greenhaven Continuous Commodity Index Fund oversees about $315 million, said Oct. 16. “The big harvest has been pretty much discounted. There are some delays from rain and the like. In the major corn areas, the harvest still has a good way to go.”