Gold Falls Back Out of Favor as Hedge Funds Retreat: Commodities

Gold is falling back out of favor with investors.

Hedge funds cut their net-bullish position in New York futures and options by the most since November, U.S. government data show. A stronger dollar and gains for equities are cutting gold’s appeal as an alternative asset. Prices in New York fell for three straight weeks, snapping a surprise January gain that was the biggest monthly advance since 2012.

The global growth concerns that pushed gold higher last month are starting to subside as tension eases between Greece and its euro-area creditors. Europe’s economy picked up momentum at the end of last year, data showed Friday. The World Gold Council estimates demand for the metal reached a five-year low in 2014 as Chinese purchases slowed.

“Gold’s recent move has been driven by the stronger dollar, with things looking good here in the U.S.,” Dan Denbow, a portfolio manager at the $760 million USAA Precious Metals & Minerals Fund in San Antonio, said in a telephone interview Feb. 12. “A lot of demand for gold comes from China. If their economy slips further, it could have a real impact for gold prices.”

The net-long position tumbled 17 percent to 133,964 contracts in the week ended Feb. 10, according to U.S. Commodity Futures Trading Commission data. Short holdings climbed for the first time since mid-December.

Equity Record

Futures lost 0.6 percent last week to $1,227.10 an ounce on the Comex in New York, and traded at $1,231.50 at 5:22 p.m. in London on Monday. The Bloomberg Dollar Spot Index slid 0.3 percent last week after touching a 10-year high on Feb. 11. The Standard & Poor’s 500 Index of U.S. equities jumped 2 percent and reached a record on Friday.

Gold dropped 29 percent in the previous two years, posting the first consecutive annual declines since 1998 as equities surged and the U.S. economy gained traction. An improving labor market has increased concern that the Federal Reserve will raise interest rates, cutting bullion’s allure because the metal generally offers returns only through price gains.

Global demand slid 4 percent to a five-year low of 3,923.7 metric tons in 2014, the World Gold Council said in a report Thursday. In China, purchases of bars and coins for investment dropped by 50 percent and jewelry buying retreated from a record, according to the London-based group.

Waning Confidence

Signs of easing momentum for U.S. economic growth may prompt the Fed to wait longer before increasing borrowing costs, reviving gold’s appeal. American consumer confidence fell in February for the first time in seven months as gasoline prices started to rise, the University of Michigan preliminary sentiment index showed Friday. The report helped the metal post a second day of gains, the longest streak since Jan. 20.

While investor interest has waned, U.S. demand for jewelry made from the metal reached a five-year high in 2014, data from the World Gold Council show. Futures have rebounded 8.9 percent since touching $1,130.40 on Nov. 7, the lowest since April 2010.

“Gold is building a new base and consolidating at these levels,” Michael Cuggino, who manages about $5.7 billion of assets at Permanent Portfolio Family of Funds Inc. in San Francisco, said by telephone Feb. 12. “Given geopolitical uncertainties, the race to devalue currencies, uneven economic performance and a general feeling of increased risk of volatility around the world, gold is going to trend higher.”

Commodity Wagers

Net wagers across 18 U.S. traded commodities fell 9.3 percent to 508,745 contracts as of Feb. 10, the lowest since October, CFTC data show. Crude wagers fell for a fourth week, and speculators got more bearish on copper.

A measure of net-long positions across 11 agricultural commodities fell 7.4 percent to 193,728 contracts, the lowest since January 2014.

Investors stayed bearish on wheat for a fourth straight week. The corn net-bullish holding fell 5.6 percent to 109,313 contracts, a seventh straight decline and the longest slump since July. Combined global wheat and corn inventories will rise to the highest since 2000 after bumper crops last season, U.S. Department of Agriculture data showed last week.

“We seem to have adequate supplies,” Frances Hudson, a global thematic strategist who helps oversee $422 billion at Standard Life Investments in Edinburgh, said by telephone on Feb. 12. “We are still riding the wave of the good harvest last year, so for a big upset, we would probably need to see a big weather event that knocks the harvest this year.”

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