Hedge funds raised bullish gold wagers to a three-month high as signs of slowing U.S. economic growth spurred demand for haven assets. Billionaire John Paulson maintained his bullion holdings last quarter.
The net-long position climbed 17 percent to 69,291 futures and options in the week ended Feb. 11, U.S. Commodity Futures Trading Commission data show. Long wagers rose 8.8 percent, the most since March. Net-bullish holdings across 18 U.S.-traded commodities rose 18 percent to 1.07 million contracts, the highest since October 2012, led by silver and coffee.
Investors’ return to bullion after the bear market in 2013 is driving prices to longest rally since 2011. U.S. factory output unexpectedly fell in January and emerging-market equities and currencies weakened. Paulson, the biggest owner of the largest exchange-traded product, left his holdings unchanged in the fourth quarter, a government filing showed. Goldman Sachs Group Inc. and Barclays Plc say the rebound will falter.
“The run-up in prices in recent weeks has been attached to the meltdown in emerging markets, and adding to that concern is U.S. economic news,” said John Rutledge, a New York-based chief investment strategist at Safanad, which manages more than $4 billion of assets. “It’s still probably too soon to say the trend in gold market has fully turned. You’ve got people who are bears because they see inflation as under control, and others looking further ahead seeing inflation.”
Futures in New York rose 4.4 percent last week to $1,318.60 an ounce, posting eight straight gains, the best streak since July 2011. The Standard & Poor’s GSCI Spot Index of 24 raw materialsclimbed 0.8 percent, while the MSCI All-Country World index of equities advanced 2.4 percent. The Bloomberg Dollar Spot Index, a gauge against 10 major trading partners, fell 0.6 percent. The Bloomberg Treasury Bond Index lost 0.1 percent.
Holdings in the SPDR Gold Trust, the biggest ETP backed by bullion, climbed for three weeks, the longest stretch since August. Paulson & Co. held 10.23 million shares as of Dec. 31, unchanged from Sept. 30 and valued at about $1.19 billion, according to a U.S. Securities and Exchange Commission filing made Feb. 14.
U.S. retail sales fell in January by the most since June 2012, and jobless claims unexpectedly rose in the week to Feb. 8, government data showed. Federal Reserve Chairman Janet Yellen said on Feb. 11 the recovery in the U.S. labor market is “far from complete.” Gold jumped 70 percent from December 2008 to June 2011 as the central bank pumped more than $2 trillion into the financial system.
Prices plunged 28 percent last year, the most since 1981, after some investors lost faith in the metal as a store of value. In November, Paulson told clients that he personally wouldn’t invest more money in his bullion fund because it was unclear when inflation would quicken. Gold held in global ETPs tumbled 33 percent in 2013, and the value of the assets dropped $73 billion.
This year’s rally will “flounder” absent a “more meaningful shift” in investor sentiment, Barclays analysts said in Feb. 14 note. Goldman analysts led by Jeffrey Currie, the head of commodities research, said in a report two days earlier that gold will “grind lower” as U.S. growth improves, reiterating a forecast for prices to reach $1,050 by the end of the year.
The Fed cut monthly bond buying by $10 billion at each of its past two meetings, leaving purchases at $65 billion. Yellen said last week reductions will continue in “measured steps.” The U.S. personal consumption expenditures price index, minus food and energy costs, rose 1.2 percent in 2013, matching 2009 as the smallest gain since 1955.
“Gold may be establishing a bottom, but there are still a lot of headwinds,” said Donald Selkin, who helps manage about $3 billion as chief market strategist at National Securities Corp. in New York. “Yellen said that the tapering is going to continue, and inflation is still low.”
Investors became bullish on silver, holding 7,675 contracts as of Feb. 11, the CFTC data showed. That compares with a net-short position of 353 contracts a week earlier. Futures rose for 10 straight sessions through Feb. 14, the longest streak since March 2008. In January, demand for silver coins sold by the U.S. Mint almost quadrupled.
Bullish bets on crude oil climbed 11 percent to 306,021 contracts, the highest since August, government data show. West Texas Intermediate advanced to the highest price in almost four months on Feb. 12. Supplies at Cushing, Oklahoma, the delivery point for the futures, shrank to the lowest since Nov. 1, the Energy Information Administration reported the same day.
Speculators expanded their net-bearish position in copper to 15,792 contracts, from 6,832 the previous week. Prices in New York climbed for two weeks, the longest rally this year. Refined imports in China, the world’s biggest metals consumer, increased 53 percent in January from a year earlier to a record.
A measure of speculative positions across 11 agricultural products jumped 30 percent to the highest since late October, the CFTC data show. The S&P GSCI Agriculture Index of eight commodities capped a third straight weekly gain, the longest run since August. The measure is rebounding after tumbling 22 percent in 2013, the most since 1981.
The net-long position in arabica coffee surged 97 percent to 15,728 contracts, the highest since September 2011. Futures in New York gained 29 percent this year, the most among the 24 commodities tracked by the GSCI. In Brazil, the top producer of coffee, sugar and oranges, the driest January since 1954 drained dams and seared plants.
Investors held a net-long wager in corn of 34,340 contracts. That’s the first bullish position since June and compares with a net-short of 5,314 a week earlier.
The net-bearish position in wheat shrank to 43,225 contracts from 52,963 a week earlier. Futures in Chicagoclimbed 3.2 percent last week, a second straight gain. Farmers in Kansas, the top domestic producer of winter varieties, are “concerned with winterkill” for crops after freezing temperatures, the U.S. Department of Agriculture said Feb. 3.
“Wheat is getting a boost from deep cold in the Midwest,” said Ashmead Pringle, the president of Atlanta-based GreenHaven Commodity Services, which oversees about $320 million. Raw materials “have been poor performers in recent years, and should do well in the long-term due to population growth and rising global income. Investors seem to be warming to commodities.”