Hedge funds increased wagers on a gold rally to the highest in seven weeks before a report showing the U.S. added more jobs than forecast spurred the biggest retreat in prices since April.
Speculators raised their net-long position by 19% to 57,113 futures and options by June 4, U.S. Commodity Futures Trading Commission data show. The holdings surged 60% in two weeks, the most since March, as short bets contracted. Net- bullish wagers across 18 U.S.-traded commodities slid 3.3% as investors became more bearish on sugar and coffee.
U.S. payrolls rose 175,000 in May, signaling companies are optimistic about the outlook for demand, the government said June 7. The report increased speculation the Federal Reserve will taper its bond buying. Gold holdings in exchange-traded products dropped 19% to a two-year low since the start of January as some investors lost faith in the metal as a store of value and as equities rose and inflation failed to accelerate.
“We saw some short-term bullish sentiment build up, then the jobs data dashed all hopes of gold rising,” said Walter “Bucky” Hellwig, who helps manage $17 billion of assets at BB&T Wealth Management in Birmingham, Alabama. “Any good news for the economy is not so good for gold. The debate about when the Fed will taper or end stimulus continues to pressure.”
Gold futures dropped 2.3% on June 7, the most since April 15, when the metal capped a two-day, 13% loss that was the biggest in three decades and sent prices into a bear market. Bullion rose 1.6% in the four days prior to the jobs report, before ending the week down 0.7% at $1,383 an ounce. Gold futures for August delivery traded little changed at $1,383.50 an ounce at 11:21 a.m. in New York today, 28% below the record reached in September 2011.
The Standard & Poor’s GSCI Spot Index of 24 commodities rose 2.5% last week, while the UBS Bloomberg CMCI gauge of 27 raw materials advanced 1%. The MSCI All-Country World Index of equities slid 0.4% and the dollar weakened 2% against six major trading partners. Treasuries lost 0.1%, a Bank of America Corp. index shows.
Bullion fell 17% since the end of December, the worst start to a year in three decades. Federal Reserve Bank of Dallas President Richard Fisher said June 4 the central bank should reduce its $85 billion in monthly asset purchases amid signs of a recovery in the housing market. Fed Bank of Kansas City President Esther George urged a slowdown of the stimulus program in a speech the same day, and Alan Greenspan, who led the central bank from 1987 to 2006, said on CNBC television June 7 the Fed should move toward ending the asset purchases.