Wednesday, December 19, 2018
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Gold Bulls Cut Wagers on Signs U.S. Growth Quickens: Commodities

Hedge funds lowered bullish gold bets for the first time in five weeks as signs of accelerating U.S. growth contributed to the longest retreat in prices in a month.

Money managers cut their net-long position by 6.5 percent to 65,517 futures and options by July 30, U.S. Commodity Futures Trading Commission data show. Holdings of short contracts rose 6.8 percent, the biggest increase in six weeks. Net-bullish bets across 18 U.S.-traded commodities contracted 15 percent as investors cut wagers on higher crude prices for the first time in a month and more than doubled bearish bets on copper.

The U.S. economy grew at a faster pace than previously forecast in the second quarter, the Commerce Department said July 31. Manufacturing expanded in July at the fastest pace in more than two years, and the unemployment rate dropped to the lowest since December 2008, government reports showed last week. Gold tumbled 22 percent this year as U.S. expansion prompted speculation the Federal Reserve taper stimulus.

"The economy is healing, and if the economy is healing then it doesn't require the assistance of the Fed," said John Stephenson, who helps oversee about C$2.7 billion ($2.6 billion) at First Asset Investment Management Inc. in Toronto. "Whether tapering happens tomorrow or next year, it's coming, and the market knows it."
Bullion Slumps

Gold futures declined 0.9 percent last week, the first drop since the week ended July 5. Prices capped a four-day losing streak on Aug. 2, the longest since June 27. Twelve analysts surveyed by Bloomberg expect the metal to fall this week, nine are bullish and four neutral, the first time the bears have dominated in six weeks.

The Standard & Poor's GSCI Spot Index of 24 commodities lost 1.4 percent this year. The MSCI All-Country World Index of equities advanced 11 percent as U.S. equities reached a record. The Bloomberg Dollar Index, a gauge against 10 major trading partners, rose 4.2 percent and the Bloomberg U.S. Treasury Bond Index dropped 2.6 percent.

U.S. gross domestic product climbed at a 1.7 percent annualized rate in the three months ending June 30 after a 1.1 percent increase in the prior quarter, government data show. The figures signaled the Fed may begin curbing its $85 billion of monthly debt purchases in September, Eric Green, an economist at TD Securities Inc. said in a report July 31.

Holdings in global exchange-traded products backed by the metal dropped 25 percent this year to the lowest since May 2010, erasing $59.2 billion from their combined value. Bullion rose 70 percent from December 2008 to June 2011 as the Fed bought more than $2 trillion of debt.
Billionaire Paulson

This year's declines hurt profits at funds run by billionaire John Paulson and for mining companies including Barrick Gold Corp. (ABX) that have announced at least $21 billion in writedowns in the past two months. U.S. expansion will accelerate in the current quarter and at least the following four quarters, according to the median of as many as 101 economist estimates compiled by Bloomberg.

Greenlight Capital Re Ltd., the reinsurer headed by hedge-fund manager David Einhorn, sold "a small amount" of bullion to buy shares of gold-mining stocks that were in "free fall," Einhorn said on a conference call July 30. Their view on the metal hasn't changed, he said. The Philadelphia Stock Exchange Gold & Silver Index of 30 mining companies plunged 34 percent in the three months ended June 30, compared with a 23 percent drop for gold futures.
Labor Market

The Fed's Open Market Committee, which sets the course of policy, cited the risk of low inflation in pledging to keep buying bonds every month after a two-day meeting concluded July 31. St. Louis Fed President James Bullard said Aug. 2 that the central bank should wait for evidence the labor market and economy are strengthening before tapering purchases.

U.S. payrolls increased by 162,000 in July, the least in four months, and hourly earnings fell for the first time since October, government figures showed Aug. 2.

"The jobs report was disappointing," said Richard Sichel, who oversees about $1.9 billion as chief investment officer at Philadelphia Trust Co. "There's another message there to the Fed to keep waiting. No rush to do things. No tapering in the near future, which makes the dollar a little bit weaker and gold a little stronger."
Quantitative Research

Gold prices added 7.3 percent in July, the biggest monthly gain since January 2012. The rally was "nothing more than a correction to an ongoing downtrend," Societe Generale analysts said in a note Aug. 1. They expect "large-scale" selling in ETFs to continue through 2014.

Money managers added $51 million to commodity funds in the week ended July 31, according to Adam Longenecker, the director of quantitative research for Cambridge, Massachusetts-based EPFR Global, which tracks money flows. That's the first inflow since Feb. 6.

Net-long positions in crude oil declined 4.6 percent to 318,819 contracts, the first drop since June 25, the CFTC data show. West Texas Intermediate, the benchmark U.S. grade, advanced 2.1 percent to $106.94 a barrel last week.

Investors more than doubled their net-short holdings in copper to 26,924 contracts, compared with 12,974 last week, the CFTC said. Supplies will top demand by 107,000 metric tons this year, and the surplus will expand to 387,000 tons in 2014, Barclays Plc estimates. Futures rose 2.2 percent to $3.1725 a pound last week.

A measure of net-long positions across 11 agricultural products declined 46 percent to 57,552 futures and options, the biggest loss since April 2, government data show. The S&P GSCI Agriculture Index (BUSY) of eight commodities dropped 1.1 percent last week, extending this year's loss to 19 percent.
Corn Bets

Investors are holding a net-short position in corn of 108,089 contracts, the most bearish since the data begin in 2006, CFTC data show. Wet weather across the Midwest may boost yields, and the U.S. Department of Agriculture projects a record harvest of 13.95 billion bushels. Prices reached the lowest since October 2010.

"We're not expecting tremendous increases in the overall commodity complex," said Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees about $112 billion of assets. "Because of the high prices we've seen over the past 10 years, we've gotten the supply response that one should expect. This is going to keep a bit of a lid on commodity prices in the near term."

To contact the reporter on this story: Elizabeth Campbell in Chicago at This email address is being protected from spambots. You need JavaScript enabled to view it.

To contact the editor responsible for this story: Steve Stroth at This email address is being protected from spambots. You need JavaScript enabled to view it.

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