Investors are boosting wagers on higher commodity prices at the fastest pace in almost four years, rebounding from the least bullish position since 2009, on signs that the U.S. is accelerating and Europe’s debt crisis is easing.
Hedge funds and other large speculators increased net-long positions across 18 U.S. futures and options by 10% to 679,191 contracts in the week ended March 26, data from the Commodity Futures Trading Commission show. The bets surged 67% in three weeks, the biggest advance since May 2009. Wagers on higher oil prices climbed the most this year, while those for cattle are at a six-week high.
The Standard & Poor’s GSCI Spot Index of 24 raw materials has rebounded 2% from a 10-week low on March 4 as contracts outstanding jumped 10% last quarter, the most in a year. The U.S. economy grew at a faster pace than previously estimated in the fourth quarter, the Commerce Department said March 28. Cypriot President Nicos Anastasiades vowed to keep his nation in the euro on March 29 after it became the fifth country to seek a rescue since the region’s crisis began in 2009.
“Over the last quarter, we’ve seen an improvement in U.S. economic activity far above expectations,” said Chad Morganlander, a Florham Park, New Jersey-based fund manager at Stifel Nicolaus & Co., which oversees about $130 billion of assets. “That has ginned up demand expectations.”
The S&P GSCI gauge gained 1.3% last quarter. The MSCI All-Country World Index of equities climbed 6%, while the dollar advanced 4% against a basket of six trading partners. Treasuries lost 0.3%, a Bank of America Corp. index shows. The CFTC holdings reached a four-year low in the first week of March and are still about 24% below the average over the past five years.
U.S. gross domestic product rose at a 0.4% annual rate in the fourth quarter, up from a prior estimate of 0.1%, government data show. American household purchases, which account for about 70% of the economy, gained 0.7% in February after a 0.4% advance the prior month that was bigger than previously estimated, the Commerce Department said. The nation is the biggest consumer of corn and crude oil.
The Cyprus government averted panic withdrawals last week when it allowed banks to open for the first time since March 16. Retail sales in Germany, Europe’s largest economy, unexpectedly rose for a second month in February, the Federal Statistics Office said March 28. Western Europe will use 14% of the world’s copper this year, and the U.S. will account for 8.7% of demand, according to Morgan Stanley.
The GSCI gauge has surged more than 80% since the end of 2008 as central banks in the U.S., Europe and Asia started record global stimulus measures aimed at reviving economies. The Federal Reserve left its asset purchases unchanged at $85 billion a month on March 20.
The S&P 500 Index advanced to a record close last week, marking the completion of the recovery from a bear market that wiped out more than $10 trillion from the value of U.S. equities. Commodities have failed to keep up with the equity rally as four years of price gains prompted farmers and miners to increase production. The GSCI is still 27% below its record close reached in July 2008.
Production will outpace demand in aluminum, copper, lead, nickel and zinc in 2013, Barclays said in a March 14 report. Cotton and sugar also will see surpluses, according to Rabobank International. U.S. crude stockpiles reached the highest since June in the week ended March 22, a government report showed March 27. American growers will plant the most corn since 1936, the U.S. Department of Agriculture said the next day.
“There’s been a lot of capacity added across the board,” said Peter Sorrentino, who helps manage about $14.7 billion of assets at Huntington Asset Advisors in Cincinnati. “There’s additional acreage in farmland, and some of the drought conditions in the southern hemisphere have eased. For industrial commodities, there’s been a huge amount of capacity added in terms of all the metals. We’re not going to see a lot of push on pricing.”
Wagers on declining copper prices increased to a net-short position of 30,036 futures and options, the CFTC data show. That’s the most-negative outlook since the data begins in 2006. Investors are also still betting on declines for heating oil, coffee, hogs, sugar, soybean oil and wheat.
Fund managers pulled $92 million from commodity funds in the week ended March 27, Cameron Brandt, the director of research for Cambridge, Massachusetts-based EPFR Global, which tracks money flows, said in an e-mail. Gold funds had an outflow of about $23 million, he said.
The GSCI lost as much as 1.3% this year before erasing declines. The price slump in raw materials was “overdone,” Goldman Sachs Group Inc. said in a March 7 report, raising its outlook for commodities to “overweight” from “neutral.” The Washington-based International Monetary Fund is predicting global growth of 3.5% in 2013, up from 3.2% in 2012.
“The biggest surprise could be growth begins to accelerate, and oil and metals prices move to the upside,” Jeffrey Currie, the head of commodities research at Goldman in New York, said in an interview. “History says that you never want to be short commodities during an economic expansion. The risk is more to the upside than to the downside, should the economy accelerate.”
Bullish gold wagers fell 14% to 60,126 futures and options in the week to March 26, the CFTC data show. The bets are down 41% this year. Those for silver fell 77% last week to 632 contracts, the lowest since September 2007.
Gold will average $1,670 an ounce this year, down from a previous forecast of $1,680, Michael Widmer, an analyst at Bank of America Merrill Lynch in London, said in a report March 26. Investors lack a reason to increase bullion holdings because “the business cycle is in the ‘recovery’ stage,” he said.
Gold futures for June delivery rose 0.2% to $1,598.60 at 9:24 a.m. on the Comex in New York. Holdings in exchange-traded products stood at 2,449.84 metric tons on March 28, 6.9% lower in 2013.
Crude-oil holdings jumped 16% to 199,129 contracts, the biggest gain since Dec. 18. The net-long position in natural gas climbed 41% to 65,040 contracts, the highest since the data starts in 2006.
A measure of speculative positions across 11 agricultural products from wheat to coffee to cattle rose 15% to 306,279 contracts, the highest since Feb. 12.
Bullish corn bets rose 32% to 192,561, a fourth straight gain and the highest since Dec. 11. Soybean wagers jumped 12% to 112,352, the biggest gain in seven weeks. The investors trimmed their outlook for a decline in coffee to 28,769 contracts from 30,162 a week earlier.
“It’s global growth at the end of the day that’s keeping the bid under commodity prices,” said James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees about $325 billion of assets. “Over the next few years, I think commodities are likely to do OK. I don’t know if they’re the best-performing asset class. I think they’re going to be a decent-performing asset class.”