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Investors Reduce Bullish Commodity Bets

Date: Monday, August 8, 2011
Author: Yi Tian, Bloomberg

Funds trimmed bets on rising commodity prices for the first time in four weeks amid mounting concern that the global economy is faltering.

Speculators cut their net-long positions in 18 commodities by 3.6 percent to 1.23 million futures and options contracts in the week ended Aug. 2, government data compiled by Bloomberg show. Bullish gold holdings climbed to the highest since at least June 2006 amid surging demand for an investment haven.

Investors dumped equities and most raw materials for the perceived safety of Treasuries, the Swiss franc and gold last week amid escalating debt concerns in the U.S. and Europe. The Standard & Poor’s GSCI Spot Index of 24 raw materials dropped 5.9 percent, the most since May. The MSCI World (MXWO) Index of equities tumbled to a 10-month low.

“People were just selling everything in a panic move,” Michael Pento, an economist at Euro Pacific Capital, said in a telephone interview on Aug. 5. “We are very concerned with what’s going on in the U.S. economy. We expect the market to continue to be bearish until the Federal Reserve comes in with another round of quantitative easing.”

Service industries in the U.S., the largest part of the nation’s economy, expanded at the slowest rate in 17 months in July, a report showed. European services and manufacturing growth eased to the slowest pace in almost two years.

Commodity Funds

Investors put $2.6 billion into commodity funds in the week ended Aug. 2, according to EPFR Global, a Cambridge, Massachusetts-based research company. Almost all the money went into gold, and industrial-commodity funds had an outflow of $260 million, the firm said.

“Rosy demand scenarios for industrial commodities during the second half of the year are thin on the ground at present,” Cameron Brandt, EPFR’s director of research, said in a report.

Hedge funds and other money managers lifted their net-long gold position by 8.8 percent to 253,653 futures and options contracts, data from the U.S. Commodity Futures Trading Commissioned showed. Bullish bets on copper and soybeans dropped.

Spot gold surged to a record $1,715.75 an ounce today and Standard & Poor’s 500 Index futures tumbled as much as 3.1 percent, following a two-week slump that erased its 2011 gain. Bullion has climbed 20 percent this year while the equity gauge has dropped 4.6 percent.

Gold Holdings

Gold rallied as the Fed kept borrowing costs near zero percent since December 2008 and completed two rounds of bond purchases, or quantitative easing, to bolster the U.S. economy.

Holdings in exchange-traded products backed by gold climbed 2.94 metric tons to a record 2,185.5 tons on Aug. 5, data compiled by Bloomberg show, gaining for the 10th session.

Copper futures lost 8.1 percent last week, the biggest weekly slump since June 2010. The futures for September delivery dropped 0.9 percent to $4.0820 a pound on Comex today.

“Perceptions of the macro outlook have taken a turn for the worst,” Gayle Berry, an analyst at Barclays Capital in London, said in a report.

Bullish bets on cocoa futures plunged 49 percent to 6,299 futures and options contracts, the lowest since mid-June. Prices in New York have dropped 5.7 percent since July 1.

-- With assistance from Chanyaporn Chanjaroen in Singapore. Editors: Patrick McKiernan, James Poole

To contact the reporter on this story: Yi Tian in New York at ytian8@bloomberg.net