Hedge funds raised bullish commodity positions by the most since November as a jump in U.S. housing starts and the first acceleration in Chinese growth since 2010 drove prices to a three-month high.
Speculators increased net-long positions across 18 futures and options by 4.3% to 682,521 contracts in the week ended Jan. 15, the biggest gain since Nov. 27, U.S. Commodity Futures Trading Commission data show. Wagers on a soybean rally rose for the first time in four weeks on signs of improved demand for supplies from the U.S., the biggest exporter. Gold holdings rebounded from the lowest since August.
U.S. housing starts jumped 12% to a four-year high in December, capping the best year for the industry since 2008, the Commerce Department said Jan 17. China expanded a faster-than-expected 7.9% in the fourth quarter, government data showed the next day. Investors boosted commodity holdings by $20.4 billion last year, up from $14.6 billion in 2011, Barclays Plc estimates.
“The stabilizing housing sector adds to commodity demand, especially building materials,” said Mihir Worah, who manages Pacific Investment Management Co.’s Commodity Real Return Strategy Fund, with about $22 billion of assets. “Better growth in China is impacting copper and other base metals. We’re seeing increased investor flows into commodities, so supportive fundamentals along with increased investor flows are resulting in higher prices.”
The S&P GSCI climbed 1.7% last week and reached 661.02 on Jan. 18, the highest since Oct. 19. The MSCI All-Country World Index of equities rose 0.5%, and the dollar added 0.6% against a basket of six major trading partners. A Bank of America Corp. index shows Treasuries returned 0.1%. Gold, up 0.3% today, and silver, 0.4% higher, extended weekly gains.
Housing starts in the U.S. climbed last month to a 954,000 annual rate, exceeding all forecasts in a Bloomberg survey of economists. U.S. jobless claims decreased by 37,000 to 335,000 in the week through Jan. 12, the lowest since Jan. 19, 2008, according to the Labor Department.
China’s acceleration snapped a seven-quarter slowdown as government efforts drove a rebound in retail sales and the housing market. Industrial output in December rose a more-than-expected 10% and fixed-asset investment for the year gained 21%. Growth may quicken to 8% this quarter and 8.2% in the three months ended June 30, according to the median of 36 economist estimates compiled by Bloomberg.
Higher taxes for Americans may dim the outlook for commodity prices if consumer spending slows, said Adrian Day, who manages about $170 million of assets as the president of Adrian Day Asset Management in Annapolis, Maryland.
As part of its budget agreement on Jan. 1, Congress agreed to let the payroll tax, used to pay for Social Security benefits, return to its 2010 level of 6.2% from 4.2%. That reduces the paycheck by about $83 a month for someone who earns $50,000. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment dropped to 71.3 in January, the lowest since December 2011, data showed Jan. 18.
“When people got their first paycheck this year, everybody was talking about it, and it’s really something they noticed,” Day said. “That is going to have a lot of impact. We may see people substituting buying bulk items instead of branded items and going to Wal-Mart instead of Whole Foods. It can all hurt the economy because it’s a significant amount of money out of people’s paychecks.”
Money managers added a net $861 million to commodity funds in the week ended Jan. 16, according to Cameron Brandt, the director of research for Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Outflows from precious-metals funds totaled $39 million, he said.
Positions on a crude-oil rally gained 6.7% to 179,249 contracts, the highest since September, CFTC data show. Futures have climbed for six consecutive weeks in New York, the longest rally since November 2011.
China, the largest oil-consuming country after the U.S., accounted for 11% of global demand in 2011, according to BP Plc. The nation, with a population of 1.34 billion, uses about 40% of the world’s copper, Barclays estimates.
Net-long positions in gold rose 8% to 99,458 contracts, the biggest gain since Nov. 27. Those for silver climbed 6.6% to 22,397, the first advance in seven weeks, and palladium wagers increased 9.2% to 16,627.
Palladium will be the best performer in 2013 among precious metals as supplies tighten and demand increases from China, Barclays analysts led by Suki Cooper in New York, said in a report Jan. 17. Energy and industrial metals also will rise this year, according to Barclays.
A measure of net-longs for 11 U.S. farm goods advanced 4% to 341,527 contracts, the first increase in six weeks, the CFTC data show. The S&P GSCI Agriculture Index of eight commodities jumped 2.8% last week, the most since July.
Soybean holdings climbed 8.4% to 79,436 contracts, the biggest gain since Dec. 11. Futures in Chicago reached a four-week high on Jan. 17 after the U.S. reported the biggest jump in export sales in more than two years.
Sales in the week ended Jan. 10 jumped to 1.61 million metric tons, the most since October 2010 and up from 321,800 a week earlier, the U.S. Department of Agriculture said. The purchases included 845,600 by China, the top consumer.
“The outlook for world economic growth has improved,” said John Kinsey, who helps manage about C$1 billion (US$1.01 billion) of assets at Caldwell Securities Ltd. in Toronto. “China’s such a big factor because they’re the largest importer of almost any commodity. There’s a new regime in Japan, and Europe seems to have its act together. Global economies are looking better than they have in some time.”