Hedge fund gold positions climb to highest since January

Hedge funds’ combined holdings in gold futures (COMEX:GCZ13) increased to the most bullish since January on mounting concern that conflict in the Middle East will boost crude-oil prices (NYMEX:CLV13), slowing economic growth and stoking inflation.

The net-long position rose 3.6% to 101,396 futures and options in the week ended Sept. 3, U.S. Commodity Futures Trading Commission data show. Long wagers gained 0.6% and short bets contracted 8.6%, the fourth consecutive drop and the longest retreat in a year. Combined net-long holdings across 18 U.S.-traded commodities fell 0.3% as investors got less bullish on copper.

Gold prices that are poised for the first annual drop since 2000 rebounded 18% since reaching a 34-month low in June. President Barack Obama, seeking Congressional approval for an attack on Syria, said Sept. 6 there is a “growing recognition” the world must act on allegations the government used chemical weapons against its own people. The Middle East produces 33% of the world’s oil and some investors buy bullion as a hedge against accelerating inflation.

“Whenever you have period of unrest, war, or investor fear, people go to gold,” said Dan Denbow, a fund manager at the $1.2 billion USAA Precious Metals & Minerals Fund in San Antonio. “The longer-term focus that gold is not dead and there are reasons for owning it is why you’re seeing bullish bets continue to grow in the space.”

Traders Split

Futures slipped 0.7% to $1,386.50 an ounce last week, the first drop since Aug. 2. Thirteen analysts surveyed by Bloomberg expected prices to rise this week, with the same number bearish and five neutral. Bullion for December delivery was little changed at $1,385.90 today.

The Standard & Poor’s GSCI Spot Index of 24 commodities climbed 1.1% last week, the second consecutive gain. The MSCI All-Country World Index of equities rose 2.1%. The Bloomberg Dollar Index, a gauge against 10 major trading partners, slid 0.3%, and the Bloomberg U.S. Treasury Bond Index lost 0.7%.

Gold climbed 13% since the end of June, heading for the biggest quarterly advance since 2007. Obama said he’ll make a more detailed case for action in Syria in an address to the nation this week after failing to gain a unified message of support following a meeting of the Group of 20 nations in Russia last week. Russian President Vladimir Putin said his country will assist Syria.

Bears Retreat

Bullish gold bets more than tripled since reaching a five- year low on June 25, CFTC data show. Speculators cut bearish wagers by 63% from a record 80,147 short contracts on July 9. Long wagers are up 13% in that time. The net-long position is 30% lower than a year earlier and tumbled 60% since reaching an all-time high in August 2011.

Gold is still 28% below the record $1,923.70 reached in September 2011. Eighteen analysts surveyed by Bloomberg last week said the metal won’t exceed that level in the next two years and 11 predicted another all-time high. Prices fell 17% this year as some investors lost faith in bullion as a store of value and amid mounting speculation the Federal Reserve will taper stimulus as economic growth accelerates.

Last week traders weighed reports showing increases for U.S. manufacturing and services with weaker-than-forecast labor data for clues to whether Fed policy makers will begin slowing bond purchases at their meeting this month. Gold climbed 70% from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system by purchasing debt.

U.S. Manufacturing

The Institute for Supply Management’s non-manufacturing index of services that make up almost 90% of the U.S. economy increased in August to the strongest since December 2005, data showed Sept. 5. American payrolls rose by 169,000 last month, trailing estimates, the Labor Department said the next day. Fed officials probably will go ahead with a plan to start reducing asset purchases, Bill Gross, manager of the world’s biggest bond mutual fund, said in a Bloomberg radio interview Sept. 6.

“People are feeling better about the future global economy, and at the same time, in part because of that, the Fed is going to start taking away the massive monetary easing,” said James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees about $340 billion of assets. “Massive monetary easing and uncertainty about the future global economy had been the two pillars under the gold market.”

Exchange Traded

The Federal Open Market Committee meets Sept. 17-18. Gold tumbled a record 23% last quarter as strength in the U.S. economy raised concern that the Fed will trim its bond buying. Holdings in global exchange-traded products backed by the metal are down 26% this year. Sales of gold coins by the U.S. Mint fell to the lowest in six years in August, retreating for the fourth consecutive month.

Gold funds had outflows of $38 million in the week ended Sept. 4, according to Simon Ringrose, the managing director of sales for Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Money managers added $500 million to commodity funds, the EPFR data show.

The net-long position in crude oil declined 3.6% to 305,971 contracts, the CFTC data show. West Texas Intermediate, the benchmark U.S. grade, advanced 2.7% to $110.53 a barrel last week, the biggest gain since early July. Prices reached a two-year high Sept. 6 as Russia’s pledge to assist Syria raised concern that escalating tension will disrupt supplies from the Middle East.

Metal Exchange

Investors decreased bullish copper holdings by 37% to 8,211 contracts. Futures rose 0.9% in New York last week. Stockpiles tracked by the London Metal Exchange fell 11% since the end of June.

A measure of net-long positions across 11 agricultural products fell 1.3% to 279,134 futures and options, the first decline since Aug. 6. The S&P GSCI Agriculture Index of eight commodities rose 3.4% from the three-year low reached Aug. 7.

Wagers on a cocoa rally climbed 2.1% to 59,464 contracts, the highest since February 2008. Prices jumped 5.3% in New York last week on dry weather in Ivory Coast and Ghana, the biggest producers.

The net-long position in soybeans climbed 15% to 159,438 contracts, the highest since November. The U.S. government may cut its outlook for the domestic crop this week after hot, dry weather, analysts surveyed by Bloomberg said. The Department of Agriculture updates its forecast Sept. 12.

Industrial Growth

The S&P GSCI index rose 8.1% since the end of June, poised for the biggest quarterly rally in a year. Goldman Sachs Group Inc. raised its forecast for China’s economic growth this year to 7.6% from 7.4%, citing industrial growth and global demand, in a Sept. 3 report. The country is the largest consumer of commodities from cotton to copper to coal.

“The better the economic news, the better it is for commodities,” said John Kinsey, who helps manage about C$1 billion ($961.1 million) of assets at Caldwell Securities Ltd. in Toronto. “If the economies are good, then they need more infrastructure and they need more steel and they need more of everything that uses commodities.”


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