Speculators lowered bullish wagers on commodities for the third straight week, the longest streak since April, as prices erased this year’s gain on mounting concern about slowing economic growth.
Hedge funds cut net-long positions across 18 U.S. futures and options by 0.2 percent to 1.18 million contracts in the week ended Oct. 23, the lowest since July 24, U.S. Commodity Futures Trading Commission data show. Copper holdings fell the most in seven weeks, and sugar wagers dropped to a one-month low. Bullish bets on gold slumped the most in three months.
The Standard & Poor’s GSCI Spot Index of 24 raw materials dropped to a 12-week low Oct. 26, two days after the Federal Reserve said that the strains in the global economy present “significant downside risks.” Services and manufacturing in the 17-nation euro area contracted more than economists forecast, and orders for U.S. capital goods stalled.
“The fact that there’s been liquidating in commodities is related to the perception of the global economic slowdown,” said Donald Selkin, the New York-based chief market strategist at National Securities Corp., which manages about $3 billion of assets. “People are getting out of more economically sensitive types of commodities.”
The S&P GSCI fell 2.6 percent last week, the most in a month, and the MSCI All-Country World Index of equities retreated 1.6 percent. The dollar added 0.6 percent against a basket of six major trading partners. Treasuries returned 0.1 percent, a Bank of America Corp. index shows.
Twenty-one of the 24 commodities tracked by S&P dropped as the number of contracts outstanding across the group contracted for the first time in four weeks. Copper declined 2.4 percent, the biggest loss since July 6, and gold fell for a third week, the longest losing streak since September 2011.
Orders for U.S. business equipment stagnated in September, capping a quarterly slump that signals investment may cool in the second half of the year, the Commerce Department said Oct. 25. Americans signed fewer contracts than forecast last month to purchase previously owned homes, figures from the National Association of Realtors showed the same day.
In the third quarter, South Korea’s economy grew at the slowest pace in three years, while Spain’s unemployment rate climbed to a record, reports showed Oct. 26. There are doubts about whether Greece will be able to meet requirements for its European bailout, German Finance Minister Wolfgang Schaeuble said in an e-mail release of an interview to be broadcast Oct. 30 on ZDF television.
Commodity prices may be bolstered as central banks do more to revive growth, said Anthony Valeri, a market strategist in San Diego at LPL Financial, which oversees $350 billion of assets. The GSCI jumped 11 percent in the third quarter as the Fed announced a third round of so-called quantitative easing.
The U.S. economy grew at a 2 percent annual rate in the three months to Sept. 30, Commerce Department data showed Oct. 26, topping the median economist forecast for a 1.8 percent gain. Consumer confidence rose to a five-year high in October, and home sales reached a two-year high in September, figures showed last week.
Fed policy makers highlighted the increase in consumer spending in the Oct. 24 statement after their meeting. They pledged to keep buying $40 billion in mortgage-backed securities a month in a bid to spur the three-year expansion and reduce joblessness. Central banks from Europe to China to Japan have also said they will do more to boost growth.
“Additional quantitative easing is still on the table, not just from the Fed,” Valeri said. “Central banks are still very involved, and QE is generally positive for precious metals.”
Money managers added $648.5 million to commodity funds in the week ended Oct. 24, according to Brad Durham, a managing director for Cambridge, Massachusetts-based EPFR Global, which tracks money flows. That includes $620.1 million into gold and precious metal funds, lower than the average weekly inflow of $1.06 billion since Aug. 22, he said.
The boost to prices from quantitative easing “has kind of run its course for the time being,” Durham said.
The economy is a central theme in the campaigns of President Barack Obama and Republican challenger Mitt Romney leading up to the Nov. 6 election. Structural headwinds, the budget deficit and the fiscal cliff will dominate the economic debate no matter who wins the election and that means “lower growth,” Pacific Investment Management Co.’s Bill Gross, who runs the world’s biggest bond fund, said in an interview on Bloomberg Television’s “In the Loop” on Oct. 25.
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