Speculators cut bullish commodity positions by the most in five months as prices had their biggest gain in eight weeks on mounting speculation that stimulus measures will bolster economic growth.
Hedge funds and other large speculators lowered combined net-long positions across 18 U.S. futures and options by 11 percent to 931,048 contracts in the week ended Nov. 6, the biggest cut since June 5, Commodity Futures Trading Commission data show. Holdings have dropped for five weeks, the longest slump since April. Gold wagers fell to the lowest since August before prices gained the most since January.
U.S. consumer confidence climbed to a five-year high in November, and exports reached a record in September, separate reports showed last week. President Barack Obama won his bid for a second term on Nov. 6, defeating Republican challenger Mitt Romney, who had criticized Federal Reserve policies. The central bank may extend its program of debt buying through 2014 because the economy is still burdened by 7.9 percent unemployment, according to JPMorgan Chase & Co.
“The tailwind for commodities from policy makers to boost economies will help demand rise,” said Adam De Chiara, who helps manage $4 billion of assets at CoreCommodity Management LLC in Stamford, Connecticut. “I don’t see the easing stopping anytime soon as the slowdown concerns remain.”
The Standard & Poor’s GSCI Index of commodities climbed 1.7 percent last week, the biggest gain since the week to Sept. 14. The MSCI All-Country World Index of equities fell 2.2 percent, and the dollar rose 0.5 percent against a basket of six major currencies. Treasuries returned 0.8 percent, a Bank of America Corp. index shows. The S&P GSCI climbed 0.3 percent today.
The U.S. trade deficit shrank to $41.5 billion, the smallest since December 2010 and lower than any estimate in a Bloomberg survey of economists, the Commerce Department said Nov. 8. The Thomson Reuters/University of Michigan preliminary consumer sentiment index rose to 84.9, the highest since July 2007, data showed Nov. 9. Consumer spending accounts for about 70 percent of the U.S. economy.
European Central Bank President Mario Draghi told journalists in Frankfurt on Nov. 8 that the bank stands ready to activate its bond-purchase program to “avoid extreme scenarios” for economies. The Fed’s open-ended program to buy $40 billion of bonds per month will last through the first half of 2014, and mortgage-debt purchases may reach $700 billion, according to Michael Feroli, the chief U.S. economist at JPMorgan in New York.
Stimulus programs may not be enough to combat an economic slowdown because the U.S. faces a so-called fiscal cliff, said Walter “Bucky” Hellwig, who helps manage $17 billion of assets at BB&T Wealth Management in Birmingham, Alabama.
The U.S. risks entering a recession that will hurt economic growth worldwide should Congress allow the more than $600 billion of tax increases and spending cuts to take effect next year, Fitch Ratings said Nov. 8. Standard & Poor’s stripped the U.S. of its AAA credit rating on Aug. 5, 2011, after months of political wrangling over the debt ceiling.
“The issue of a global slowdown and worries about the fiscal cliff will be a drag, and that makes me cautious,” Hellwig said. “The environment is less than attractive, and we have not added to our position in commodities for some time and have a minimal exposure.”
Goldman Sachs Group Inc. is “increasingly cautious” about copper in the short term because of the fiscal cliff. Refined supplies have been in surplus for the past several weeks, Max Layton, one of the bank’s analysts in London, said in a report Nov. 8. Net-long positions in copper fell 70 percent to 2,077 contracts, the lowest since Sept. 4, the CFTC data showed.
Money managers added a net $235 million to commodity funds in the week ended Nov. 7, with gold and precious metals accounting for $501 million, according to Cameron Brandt, the director of research at Cambridge, Massachusetts-based EPFR Global, which tracks money flows.
China’s industrial production rose 9.6 percent in October from a year earlier, the National Bureau of Statistics said Nov. 9, exceeding analyst estimates. The country is the world’s biggest consumer of copper, soybeans and pork. The U.S. is the top user of corn and crude oil.
Investors trimmed gold wagers by 13 percent to 130,128 contracts, the lowest since Aug. 21. Prices jumped 3.3 percent last week, and are up 10 percent in 2012, heading for a 12th straight annual gain.
Twenty-five of 33 analysts surveyed by Bloomberg expect gold prices to rise this week, and three were bearish. A further five were neutral, making the proportion of bulls the highest since Aug. 24. Investors boosted assets in gold-backed exchange- traded products to an all-time high of 2,596.1 metric tons on Nov. 8, data compiled by Bloomberg show.
A measure of 11 U.S. farm goods showed speculators trimmed bullish bets in agricultural commodities by 12 percent to 532,601 contracts. Bets on a hog rally tumbled 23 percent to 23,979 contracts, the biggest drop since Aug. 28. Prices jumped 3.9 percent last week, reaching the highest in more than three months on Nov. 9. The U.S. Meat Export Federation said Nov. 6 that the value of shipments may top $11.5 billion this year, exceeding the 2011 record.
“While fundamentals will help the agriculture pack, the continuous money-printing policy that central banks have adopted will support most commodities,” said Jeffrey Sica, the Morristown, New Jersey-based president of SICA Wealth Management, who helps oversee more than $1 billion of assets. “The overall long-term trend remains bullish.”