Gold Bulls Retreat With $1.3 Billion Pulled From Funds

Speculators cut their bullish gold bets before prices tumbled to the lowest since 2010 as demand for a hedge against inflation diminished.

The net-long position in New York futures and options declined for the first time in three weeks, U.S. government data show. Gains for the American economy have eroded the appeal of bullion as a haven and helped boost the dollar to a four-year high. The Federal Reserve said last week it saw enough improvement to end its bond-buying stimulus program.

More than $1.3 billion was pulled from U.S. exchange-traded products tracking precious metals in October, the biggest monthly decline this year, data compiled by Bloomberg show. Societe Generale SA’s Michael Haigh, the analyst who correctly predicted gold’s slump into a bear market last year, said the crash in oil prices underscores why inflation is unlikely to accelerate and adds “ammunition” to the pressure on bullion.

“We are betting on lower gold prices and telling our clients that they should have zero allocation in gold,” Atul Lele, who helps oversee $5.1 billion as the chief investment officer at Bahamas-based Deltec International Group, said Oct. 31. “The dollar will continue to strengthen as other nations are printing money at a time when the U.S. has taken stimulus off the table. U.S. growth is another reason why people will stay away from gold.”

Gold Slump

Futures tumbled 4.9 percent to $1,171.60 an ounce on the Comex in New York last week, and on Oct. 31 touched $1,160.50, the lowest since 2010. The Bloomberg Commodity Index of 22 raw materials climbed 1 percent last week as the MSCI All-Country World Index of equities jumped 2.5 percent. The Bloomberg Dollar Spot Index rose 1.2 percent last week, and today was set for the highest close since April 2009. Bullion extended its decline today, falling as much as 0.9 percent to $1,161, before settling at $1,169.80.

The net-long position in gold fell 6.6 percent to 70,298 futures and options contracts in the week ended Oct. 28, according to U.S. Commodity Futures Trading Commission data published three days later. Long holdings contracted 3.8 percent, the most in six weeks.

The U.S. grew at a faster pace than analysts forecast in the third quarter, government data showed Oct. 30. The Fed said a day earlier that it would stop buying debt amid “solid” gains in the labor market. Global holdings in ETPs backed by gold have dropped to the smallest in five years.

Cheaper Energy

Crude oil fell to a two-year low in New York last week, with the declines increasing the chances that gold will drop to $1,000 over the next two years, SocGen’s Haigh said in an interview Oct. 30. Cheaper energy “means lower inflation and adds to the bearish gold story,” he said.

The prospect of slowing global growth will help revive demand for precious metals as a store of value, according to Jeff Sica, who helps oversee more than $1 billion as chief investment officer at Sica Wealth Management in Morristown, New Jersey.

Russia boosted gold reserves in September by the most since defaulting on local debt in 1998, driving its bullion holdings to the largest in at least two decades, International Monetary Fund data showed last week. The Bank of Japan on Oct. 31 raised its annual target for enlarging the monetary base in a bid to shore up growth.

Sales of gold coins by the U.S. Mint, the world’s largest, in October capped two straight monthly increases for the first time since January. The IMF cut its 2015 global growth forecast to 3.8 percent in October, from a July estimate of 4 percent.

‘Crisis Mode’

“Investors should hold on to their gold since it’s obvious that the central banks are in crisis mode,” Sica said Oct. 31. “The contagion from Europe and Asia will hinder the U.S. economy, and many investors think there is a strong possibility that the U.S. will have to roll out stimulus going forward.”

Gold climbed 70 percent from December 2008 to June 2011 as the U.S. central bank bought debt and held borrowing costs near zero percent in a bid to shore up growth. Prices slumped 28 percent last year, the most in three decades. The Fed’s $4 trillion of bond purchases since 2008 have yet to generate the runaway inflation that some gold buyers expected.

Net-bullish holdings across 18 U.S.-traded commodities rose 3.9 percent to 576,584 contracts as of Oct. 28, the CFTC data show.

Copper Wagers

Speculators got less bearish on copper, taking their net-short position to 1,246 contracts from 11,942 a week earlier. Futures fell for a second day on Oct. 31 as workers called off a strike at Freeport-McMoRan Inc.’s site in Indonesia. The threat of supply disruption had pushed prices higher in the first three days of the week.

A measure of net-long positions across 11 agriculture commodities jumped 12 percent to 368,472 contracts, the government data show. That was the biggest holding since July.

Investors held a soybean net-long position of 8,382 contracts, the CFTC said. That compares with a net-short wager of 16,337 a week earlier. Bullish bets on soybean meal rose for a third week, the longest streak since April.

Freight trains aren’t getting food to chickens fast enough, sending prices for livestock feed made from soybeans to the biggest monthly gain in 40 years.

“You are already having a strong export market, and livestock guys are feeding more and more to meet the increased demand,” Chris Narayanan, the head of agricultural research at SocGen in New York, said Oct. 30. “Bottom line, we have more corn and grains than last year, but demand is still pretty steady.”

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