Hedge funds cut bets on a gold rally by the most since February after the Federal Reserve laid out plans for reducing stimulus and this year’s drop in the value of exchange-traded funds (ETFs) extended to $55 billion.
Speculators reduced their net-long position by 29% to 38,951 futures and options by June 18, U.S. Commodity Futures Trading Commission data show. Holdings of short contracts jumped 14%, the most in eight weeks. Net-bullish wagers across 18 commodities slid 2.2% as investors became more bearish on copper and wheat.
Fed Chairman Ben S. Bernanke said last week that the central bank may slow its bond-buying program if the U.S. economy continues to improve, driving bullion to its lowest price since 2010. Gold, which tumbled into a bear market in April, is poised for more declines, according to Credit Suisse Group AG and Societe Generale SA. Investors cut their holdings through ETPs by 20% this year, on pace for the first annual drop since the products were introduced in 2003.
“There’s certainly a rush to the exits in gold,” said Jim Russell, a senior equity strategist in Cincinnati at U.S. Bank Wealth Management, which oversees about $110 billion of assets. “The nudge up in the Fed’s expectations economically suggests they may unwind their program a little quicker than investors thought.”
Gold futures dropped 6.9% last week, the most since April, and prices reached $1,268.70 on June 21, the lowest since Sept. 16, 2010. Traders are the most bearish in 3 1/2 years, with 15 analysts surveyed by Bloomberg expecting prices to fall this week. Six were bullish and five neutral, the largest proportion of bears since January 2010. Gold futures for August delivery retreated 0.6% to $1,283.70 at 11:40 a.m. on the Comex in New York.
The Standard & Poor’s GSCI gauge of 24 commodities retreated 3.4% for the week and the MSCI All-Country World Index of equities fell 3.2%. The dollar gained 2% against a basket of six currencies. A Bank of America Corp. Index shows Treasuries lost 1.7%.
Policy makers may begin tapering asset buying this year and end the program in 2014 should the economy and labor market continue to improve, Bernanke said at a press conference June 19. The Fed will cut its monthly bond purchases of $85 billion by $20 billion at its September meeting, according to 44% of economists in a Bloomberg survey following Bernanke’s remarks. Gold as much as doubled from the end of 2008 to a record $1,923.70 in September 2011 as the Fed cut interest rates to a record low and bought debt.