Last week’s wide price swings continued to befuddle and frustrate speculators in the commodities’ space and for a fourth consecutive week the results revealed that hedge fund players placed their bets incorrectly in these markets. The China ‘factor’ remained the principal drag on prices and that country’s prospects for a less-than-soft economic landing appears to have “petrified market speculators” – in the words of one US money manager.
In fact, if the recent data compiled by the International Strategy & Investment Group is correct, the world of hedge funds now appears to actually be giving up on bearish bets on equities and they are diverting money into them at the largest clip in two years’ time. For once, the “buy everything” syndrome (stocks and commodities in tandem) appears to be finally exhibiting some signs of dissipating. In part, such a shift is based on rising convictions that the US economy – recently expanding at 2% or so (a circa five-fold jump from levels seen one year ago) – will be very good for the performance of stocks.
The market “jury” appears to remain very much “out” on the degree of hardness that China’s landing is going to be defined by, but analysts warn that even the soft variety of same poses the threat of a lot of potential pain for commodity-exporting nation (Australia, Canada and Brazil come to mind) that have become heavily addicted to Chinese intake for “stuff” in recent years. The conclusion is – according to one ING commodities researcher – that “the idea that commodities are just a one-way bet as an asset class is over.”
Standard Bank’s latest tally on metals market speculative positioning reveals that players in gold and silver remained wary and that net selling of both metals occurred in the week ended March 23. Speculative longs in gold trimmed positions by nearly 81 tonnes and increased short bets by nearly 13 tonnes. In fact, the net sellers outnumbered net buyers for the first time in circa two months in gold.
ETFs shed balances as well for the first time in eight weeks, as they let go of more than eight tonnes of the yellow metals. In silver, the situation was largely similar but more so, as the data showed the addition of over 128 tonnes of short bets while long ones lost contracts totaling more than 213 tonnes. Meanwhile, silver-based ETFs sold roughly 30 tonnes of the white metal.
Precious metals opened firmer this morning, but once again revealed just how over-dependent they are on practically every word that Mr. Bernanke utters (or does not utter) when he makes a speech. The mere mention of the fact that ultra-low interest rates are helpful to an economy that is trying to grow, and that such growth is what will stimulate US jobs creation, sent gold prices soaring by nearly 1% in early trading in New York, touching $1,680 in the process.
To be sure, all that the Fed Chairman actually said was that it is not yet clear that the recent positive job metrics will endure and that low rates are helpful, but the truth is that precious metals players remain desperately fixated on any promise of a QE3 by the Fed, or even the hint of one. Also helping the early price action to the upside this morning was the warning by Italian PM Mario Monti that the EU debt crisis could witness a fresh flare-up in the event that Spain’s financial situation veers out of control.