Hedge funds cut wagers on a gold rally to a five-year low as a record quarterly drop drove prices below $1,200 an ounce for the first time since 2010 and Goldman Sachs Group Inc. forecast more declines.
Money managers reduced their net-long position by 20% to 31,197 futures and options by June 25, U.S. Commodity Futures Trading Commission data show. That’s the lowest since June 2007. Holdings of short contracts climbed 5% to 77,027, the second-highest on record. Net-bullish wagers across 18 commodities tumbled 9%, the most in 12 weeks.
Gold’s 27% slump to the end of June, the worst first-half performance since 1981, erased $60.4 billion from the value of assets in exchange-traded products as investors cut holdings to a three-year low. The metal is poised to snap 12 consecutive annual gains. Banks from Goldman to Credit Suisse Group AG cut their gold forecasts last week after the Federal Reserve said it may taper stimulus as the economy improves.
“The things that supported gold have begun to crack,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott LLC in Philadelphia, which manages about $58 billion of assets. “Worries about inflation have completely disappeared with the Fed talking about ending the easing at some point. As macroeconomic risks diminish, the stool from beneath gold prices has been pulled away.”
Gold futures dropped 23% last quarter, the most since Bloomberg data begins in 1975, and reached $1,179.40 on June 28, the lowest since August 2010. Traders are divided on the outlook for prices this week with 15 surveyed by Bloomberg expecting an advance. Fourteen were bearish and three neutral.
The Standard & Poor’s GSCI gauge of 24 commodities tumbled 6.7% last quarter, the most in a year. The MSCI All- Country World Index of equities slid 1.2%. The dollar rose 0.2% against a basket of six currencies. A Bank of America Corp. Index shows Treasuries lost 2.2%. Gold futures for August delivery rose 1.1% to $1,237.30 at 10:17 a.m. on the Comex in New York.
Goldman expects prices to drop to $1,050 by the end of next year, 17% less than its previous forecast of $1,270, the bank’s analysts said in a June 23 report. Declines will continue as the Fed trims its bond-buying program and investors sell ETP holdings, the bank said. Fed Chairman Ben S. Bernanke said June 19 the central bank will reduce its $85 billion in monthly asset purchases if the U.S. economy continues to improve.
Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.