Hedge funds accumulated their second-biggest bet against gold on record just as prices rallied the most in 15 months on surging demand for coins and jewelry and Goldman Sachs Group Inc. ended a recommendation to sell.
The funds and other large speculators held 69,726 short contracts on April 23, within 0.6% of the all-time high reached six weeks earlier, U.S. Commodity Futures Trading Commission data show. The net-long position dropped 25% to 46,168 futures and options. Net-bullish wagers across 18 U.S.-traded raw materials slid 5%, the third decline in four weeks, with cuts in silver, corn and gasoline.
Bullion rallied 11% since reaching a two-year low April 16. The U.S. Mint ran out of its smallest gold coin last week, with sales across its products poised for the best month since December 2009, and the U.K. Mint said purchases tripled. Premiums paid by jewelers in India, the biggest importer, to secure supply surged as much as fivefold in 10 days. Goldman said April 23 it closed a bearish recommendation, while saying further declines are likely.
“It’s bizarre that the price has come back so rapidly,” said Donald Selkin, who helps manage about $3 billion of assets as the chief market strategist at National Securities Corp. in New York. “After the big decline, demand jumped like crazy. It’s the old rubber-band theory: You stretch too far, and eventually, it snaps back. Banks came in to buy, and there is record demand for coins around the world.”
Gold futures jumped 4.2% to $1,453.60 an ounce on the Comex in New York last week, the most since January 2012. Analysts are the most bullish in a month, with 15 anticipating higher prices this week. Eleven are bearish and three neutral, according to a Bloomberg survey. The contract for June delivery advanced 0.8% to $1,465.60 at 10:12 a.m. in New York.
The Standard & Poor’s GSCI Spot Index of 24 commodities climbed 2.4% last week and the MSCI All-Country World Index of equities gained 2.3%. The dollar slid 0.3% against a basket of six currencies, while Treasuries returned 0.2%, a Bank of America Corp. index shows.
Bullion tumbled into a bear market April 12 and plunged 9.3% in the next session, the biggest drop in 33 years. The retreat underscored how some investors had lost faith in the traditional store of value, even as central banks printed money on an unprecedented scale to boost growth. The slump spurred buyers across the world to increase their physical holdings, and billionaire John Paulson, the biggest investor in the largest exchange-traded product backed by bullion, reiterated his bullish view on prices.
A surge in demand in Turkey is causing delays in coin deliveries by the Istanbul-based mint, Chief Executive Officer Sadettin Parmaksiz told Haberturk newspaper on April 19. The Perth mint has seen an “enormous number of people” buying gold, with interest from India, Thailand and China, Treasurer Nigel Moffatt said on Bloomberg Television April 19. Jewelers in India are paying premiums of as much as $10 an ounce, from $2 just 10 days earlier, according to the Bombay Bullion Association.
Demand has also come from central banks, owners of about 19% of all the metal ever mined. Russia and Kazakhstan boosted official reserves for a sixth month, International Monetary Fund data show. Central banks will buy as much as 550 tons this year after boosting holdings by 534.6 tons last year, the most since 1964, the World Gold Council estimates.
Goldman exited its bet on lower prices last week after issuing a sell recommendation April 10. The bank said gold’s decline has been “surprisingly rapid.” Prices may still continue to fall as investors’ conviction in holding the metal wanes, analysts including Samantha Dart and Jeffrey Currie said in the April 23 report.
Holdings in global ETPs slumped 13% to 2,283.57 tons this year, the lowest since October 2011. Hedge funds expanded short wagers 17% to more than quadruple the average since 2006, when the CFTC data begins.
Prices fell this month as equity markets rallied on improving global growth and weakening expectations for inflation. The Standard & Poor’s 500 Index of equities has more than doubled from its 12-year low in 2009, reaching an all-time high on April 11. Inflation expectations as measured by the break-even rate for five-year Treasury Inflation Protected Securities on April 18 reached the lowest since November.
“People are finally embracing equities,” said Troy Gayeski, partner and senior portfolio manager at New York-based SkyBridge Capital, which manages $7.4 billion of assets. “Investors woke up and said ‘Why do we own this?’ That’s when the gold selling started.”
Money managers took $2.6 billion from commodity funds in the week ended April 24, according to Cameron Brandt, the director of research for Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Outflows from gold and precious-metals funds totaled $2.15 billion, he said.
Investors cut their silver net-long position by 26% to 5,689 contracts, the CFTC data show. Prices in New York jumped 3.4% last week, the most since January.
The hedge funds narrowed bets on a decline in copper to a net-short position of 15,727 contracts, from 27,412 a week earlier, the CFTC data show. Bullish oil wagers slid 0.3% to 182,408, the third decline. Palladium and platinum holdings also fell for a third week.
A measure of speculative positions across 11 agricultural products gained 1.1% to 106,391 contracts, a second consecutive gain. Holdings are rebounding after touching 56,404 on April 9, the lowest in more than six years. The S&P GSCI Agriculture Index of eight components slumped 1.9% last week and touched the lowest since June on April 24.
U.S. planting should increase as warm, dry weather firms muddy soils for farm machinery, Global Weather Monitoring said April 26. World grain production will increase 7% this season to 1.91 billion metric tons, as wheat output gains 3.8%, the London-based International Grains Council said a day earlier. The global corn crop will surge 10%.
“Unless we have a really bad summer, it’s tough for me to see a run up in grain prices,” said Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees about $110 billion of assets. “In gold, we have some anecdotal signs of increased demand in the physical markets from China and India as they tend to bottom fish. We’ve found a temporary pause.”