Hedge Funds Long Money in Commodities Up After 4 Weeks

Date: Tuesday, May 8, 2012
Author: Reuters

Hedge funds and other money managers made more positive wagers on commodities than negative bets for the first time in five weeks, the Commodity Futures Trading Commission reported Friday [May 4], as softening U.S. data raised expectations for a stimulus.

But a huge sell-off in oil this week could reverse the trend by the time the CFTC makes its next weekly report on money managers' positions in commodities, analysts said.

Data from the U.S. commodities regulator showed that the net long positions across 24 futures markets held by hedge funds and other money managers rose by around $7 billion in value to about $92 billion in the week to May 1.

The 8 percent rise came after a rally in prices of copper, oil and gold following remarks on April 26 by Federal Reserve Chairman Ben Bernanke that showed the Fed being open to a third of asset purchases or quantitative easing (QE) since the financial crisis.

The CFTC's Commitment of Traders (CoT) Report for the week to May 1 showed strong buying by money managers particularly in copper, gold and oil. Copper had among the biggest rise in net longs, up six-fold from the previous week.

Bullish buying by hedge funds and money managers took the net length in copper futures and options on the New York Mercantile Exchange to 15,582 contracts from just 2,217 in the earlier week.

"The funds were in, buying on the idea that we may still see a QE3," said Sterling Smith, an analyst for Country Hedging Inc. in St. Paul, Minn. "That is their only logical motivation to buy copper right now, simply because the global economy is not looking too healthy here. It remains weak in Europe, China's slowing down, and today's U.S. unemployment numbers were not good."

The net length in gold rose by 8,462 contracts to 116,061 contracts.

Net longs in futures and options of crude oil held by money managers on both the New York Mercantile Exchange and ICE Futures U.S. rose by more than 10 percent to 235,400 contracts.

Prior to May 1, the net-long managed money in commodities had fallen by a total of nearly $19 billion for four straight weeks on fears that Europe could face another round of debt troubles and that China's economy may be slowing.

Some doubt that the turnaround seen in the latest CFTC data would hold in the forthcoming report.

Commodities saw a broad selloff this week, with U.S. crude oil losing 4 percent in value just on Friday alone, reacting largely to a disappointing U.S. jobs report for April.

"All logical signs point to a broad drop in net longs in the coming week," said Adam Sarhan, founder of New York-based Sarhan Capital.