Hedge funds and other speculators are making the biggest bet on a gold rally since January as mounting signs that the U.S. will lead a military strike against Syria drove prices to a three-month high.
Money managers boosted their net-long position by 34% to 97,902 futures and options by Aug. 27, the most since Jan. 22, U.S. Commodity Futures Trading Commission data show. Holdings of short contracts tumbled 37% to 32,088, the biggest drop in 11 months. Net-bullish holdings across 18 U.S.- traded commodities climbed 18% to 824,251, the highest since February.
Gold, down 28% (COMEX:GCZ13) from the record set two years ago after some investors lost faith in the metal as a store of value, climbed for four weeks as the rout spurred demand for coins, bars and jewelry. Prices gained 6.3% in August, and U.S. equities fell the most in more than a year, as western nations debated a response to alleged chemical-weapons use in Syria. That increased concern about disruptions to Middle East oil supply that would raise energy costs and stoke inflation.
“Investors have sobered up with their perceptions of gold,” said Michael Cuggino, who manages $12 billion of assets at Permanent Portfolio Family of Funds Inc. in San Francisco. “You have people talking about it as an investment again. Physical demand never really tailed off.”
Gold climbed 30 cents to $1,396.10 an ounce on the Comex in New York last week. Twenty-three analysts surveyed by Bloomberg expect prices to rise this week. Six were bearish and five neutral, leaving the highest proportion of bulls since March 8. Futures were down 0.3% at $1,392 today.
The Standard & Poor’s GSCI Spot Index of 24 commodities gained 2.9% last month. The MSCI All-Country World index of equities dropped 2.3%, while the S&P 500 tumbled 3.1%, the most since May 2012. The Bloomberg Dollar Index, a gauge against 10 major trading partners, gained 0.8% and the Bloomberg U.S. Treasury Bond Index slid 0.8%. Commodities beat equities, bonds and the dollar for a third month, the longest winning streak in two years.
President Barack Obama said Aug. 31 he will seek congressional authorization to use military force against Syrian regime targets once Congress returns from its recess. The administration released an intelligence assessment a day earlier that concluded with “high confidence” the Middle Eastern regime carried out an attack that killed 1,429 people earlier. Gold reached $1,434 on Aug. 28, the highest since May 14, before falling for three days.
Demand for jewelry, coins and bars will reach as much as 1,000 metric tons in India and China in 2013, the World Gold Council estimates. Gold sales by the Austrian mint in Vienna expanded 79% from January to July compared with a year earlier. Russia increased its gold reserves in July to the most since at least 1993, with Kazakhstan and Guatemala also adding to holdings, according to International Monetary Fund data.
Bullion holdings through exchange-traded products climbed 0.1% last week, the third straight advance and the longest run of increases this year. About $54.2 billion was wiped from the value of the assets this year as gold prices tumbled 17%, spurring losses for billionaire John Paulson and forcing Newcrest Mining Ltd. and other mining companies to announce at least $26 billion in writedowns.
Federal Reserve officials meeting this month will consider whether to begin curbing $85 billion of monthly bond purchases. Gold rose 70% from December 2008 to June 2011 as the U.S. central bank pumped more than $2 trillion into the financial system by purchasing debt, increasing investor concerns about currency debasement and accelerating inflation.
Fed policy makers were “broadly comfortable” with Chairman Ben S. Bernanke’s plan to start reducing bond buying later this year if the economy improves, according to minutes of their July meeting released Aug. 21. The U.S. economy expanded 2.5% last quarter, up from an initial estimate of 1.7%, the Commerce Department said Aug. 29.
Bullion tumbled a record 23% in the three months ended June 30 amid mounting speculation that the central bank will reduce its asset purchases.
“The increase in gold has been because of some temporary factors,” said Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees about $112 billion of assets. “As I look forward, some of these things start to unwind. With better economic news on the horizon, it means taper terror is back in the gold market.”
Money managers withdrew $361 million from gold funds in the week ended Aug. 28, according to Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Commodity funds had outflows of $17 million.
Commodity assets under management rose in July by about $1 billion to $348 billion, the first increase since early 2013, Barclays Plc said in a report Aug. 27. Price gains made up for a decline of $3.1 billion in investments, with precious metals making up the majority of the withdrawals, the bank said.
Net-long positions in crude advanced 4.9% to 317,523 contracts, CFTC data show. West Texas Intermediate reached a two-year high on Aug. 28 amid concern that escalating conflict in the Middle East may disrupt supplies. Prices retreated 2.2% over the next two days as U.K. lawmakers rejected a proposal by Prime Minister David Cameron seeking a military response to Syria.
Bullish holdings in copper slid 9.1% to 13,043 contracts. The wagers were bullish for a third week after five straight months of bearish bets. Futures in New York climbed 3.7% in August, the most since November, amid signs of improving demand in China, the world’s largest consumer. Refined imports of the metal reached a 10-month high in July, Chinese customs data showed Aug. 21.
Silver wagers climbed 2% to 16,469 contracts, the highest since February. Investors were betting on a decline as recently as June. Holdings of the metal in ETPs climbed to a record Aug. 30. Bullish platinum bets rose for a seventh consecutive week.
A measure of net-long positions across 11 agricultural products jumped 31% to 282,843 futures and options, government data show. Investors had a net-short holding of 9,713 in the week to Aug. 6, the first bearish outlook in records going back to June 2006. The S&P GSCI Agriculture Index of eight commodities advanced 0.4% last month, the first gain since January.
Bullish soybean holdings increased 38% to 138,182 contracts, the highest since June 11. Prices surged 13% in August, the most in 13 months, as drought expanded in Iowa and Illinois, the top U.S. growers. Heat and dry weather may reduce the domestic crop that the U.S. Department of Agriculture forecast to be 8% bigger than last year.
Profit growth for industrial companies quickened to 12% in July from 6.3% in June, China’s National Bureau of Statistics said Aug. 27. Credit Suisse Group AG raised its forecasts for Chinese economic growth this year and next a day earlier as data from manufacturing to exports signal strengthening expansion. The GSCI commodity gauge has rebounded 10% since reaching a nine-month low in April.
“The declines in commodities were overdone on the concerns over China’s economy,” said Adrian Day, who manages about $135 million as the president of Adrian Day Asset Management in Annapolis, Maryland. “We’re seeing a more realistic view of the Chinese economy. People are also seeing that supplies will be up, but it’s not going to crush the market.”