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.