BackGold bulls retrench as price drops most in 32 years
Global equities rallied on improving growth prospects and inflation failed to accelerate, eroding demand for bullion as a preserver of wealth
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New York: Hedge funds got less bullish on gold for the seventh time in eight weeks as the US economy strengthens and inflation fails to accelerate, driving prices to the biggest annual drop in more than three decades.
The net-long position in gold fell 12% to 28,702 futures and options in the week ended 24 December, US Commodity Futures Trading Commission data show. Short holdings gained 1.1% to 76,052, a three-week high. Net-bullish holdings across 18 US-traded commodities climbed 4.5% to 768,354 contracts as copper wagers gained to a 34-month high.
Investors shunned gold in 2013, halting 12 straight years of price gains. Global equities rallied on improving growth prospects and inflation failed to accelerate, eroding demand for bullion as a preserver of wealth. Assets in exchange-traded products backed by bullion fell to the lowest since 2009 as holders including billionaires George Soros and John Paulson sold. The International Monetary Fund signaled this month the US economy will expand more than forecast.
Gold is something we avoid, said Michael Shaoul, the chief executive officer of Marketfield Asset Management LLC, which oversees about $17 billion. The developed economies are growing, and equities remain very interesting, so there is really no reason to be in gold.
Futures in New York retreated 28% this year to $1,201.60 an ounce, poised for the first loss since 2000 and the biggest since 1981. The Standard & Poor’s GSCI gauge of 24 commodities slid 1.8%, while the MSCI All-Country World index of equities advanced 20%. The Bloomberg Dollar Index, a gauge against 10 major trading partners, rose 3.5%. The Bloomberg Treasury Bond Index fell 3.2%.
Record outflows
Investors pulled $38.6 billion from gold funds this year, the most in data going back through 2000, according to EPFR Global, a research company. Futures settled at a three-year low on 19 December, a day after the Federal Reserve cut the pace of its monthly bond purchases to $75 billion from $85 billion, easing concern that inflation would accelerate. US consumer prices were unchanged in November after a 0.1% drop the prior month, according to 17 December data from the Labour Department.
US pending home sales climbed 0.2% in November, the first gain in six months, the National Association of Realtors said on Monday. There’s a much stronger outlook for US growth in 2014, IMF managing director Christine Lagarde said in an interview broadcast 22 December on NBC’s Meet the Press.
Prices are likely to grind lower through 2014, Jeffrey Currie, the head of commodities research at Goldman Sachs Group Inc. in New York, said in a telephone interview 19 December. The metal will reach $1,050 by the end of 2014, the bank said in a 20 November report. The Fed will probably cut its bond purchases in $10 billion increments over the next seven meetings before ending the program in December 2014, according to a Bloomberg survey of economists conducted on 19 December.
More inflation
The improving economic growth that’s prompted investors to flock to equities may eventually bring more inflation and revive demand for bullion, according to Jim Russell, who helps oversee $113 billion as a Cincinnati-based senior equity-strategist for US Bank Wealth Management.
Inflation expectations as measured by the break-even rate for five-year Treasury Inflation Protected Securities climbed 1.7% in December, snapping two months of declines. Policy makers may hold interest rates near zero percent even if unemployment falls below the 6.5% rate the central bank previously cited as a likely catalyst for an increase, the Fed said in its 18 December statement.
Gold surged more than 500% in the 12 straight years of gains through 2012 as the dollar weakened. The rally accelerated from December 2008 to June 2011 as the Fed expanded its balance sheet through debt purchases and held borrowing costs at a record low in a bid to revive growth amid a US recession. Bullion reached a record $1,923.70 in September 2011.
‘Find support’
While there are no immediate worries about inflation, it can’t be ruled out in the future with economic growth accelerating in some parts of the world, said Jeff Sica, who helps oversee more than $1 billion of assets as president of Sica Wealth Management in Morristown, New Jersey. Gold will find support at lower prices with interest rates hovering near zero.
Holdings in the 14 biggest gold ETPs plunged 33% since the end of December to 1,764.1 metric tons, on pace for the first annual decrease since the funds started trading in 2003, data compiled by Bloomberg show. The removals, along with slumping prices, erased $73.6 billion in the value of the assets.
Billionaire John Paulson, the largest holder in the SPDR Gold Trust, the biggest ETP, said on 20 November that he personally wouldn’t invest more money into his gold fund because it’s not clear when inflation will quicken. Soros sold his entire stake in the SPDR Gold Trust in the second quarter.
Crude oil
Bullish bets on crude oil climbed 4.4% to 263,965 contracts, the highest since September, government data show. The CFTC data, regularly released on Fridays, were delayed last week because of the Christmas holiday.
US crude stockpiles decreased 1.3% to 367.6 million barrels in the week ended 20 December, the lowest since September, according to the Energy Information Administration. Supplies of gasoline and distillate fuel, including diesel and heating oil, also dropped amid rising demand.
Speculators increased their net-long position in copper by 43% to 29,489 contracts. That’s the most bullish outlook since February 2011. While the metal has been in a bear market since April, prices in New York rallied 13% from this year’s low in June as stockpiles monitored by the London Metal Exchange fell to the lowest since January.
Agriculture holdings
A measure of speculative positions across 11 agricultural products slid 1% to 242,647 contracts, as investors got more bearish on sugar, the CFTC data show. That was the sixth straight drop, the longest slump since October 2012.
The funds reduced their bearish outlook in corn, holding a net-short position of 87,794 contracts, compared with 104,845 a week earlier. US exporters sold 1.48 million metric tons in the week ended 19 December, up 79% from a week earlier, the Department of Agriculture said 27 December.
The net-short holding in wheat narrowed to 69,832 contracts from 71,714 a week earlier, the CFTC data show. Commodity outperformers in 2014 will include aluminum, nickel, corn and wheat, analysts at DZ Bank AG in Frankfurt said in report e- mailed on Monday and dated 20 December.
A closer match of supply and demand can come up in industrial metals like copper, and we could see a lift in prices, said US Bank’s Russell. We do have representation of commodities in many of our clients’ portfolios as we are seeing signs of growth in some parts of the world. BLOOMBERG
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