Hedge fund gold positions climb to highest since January

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.

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