Hedge fund money in commods at 1-year high

Date: Tuesday, September 11, 2012
Author: Barani Krishnan, Reuters

The money held by hedge funds and other big speculators in commodities has hit a one-year high, with markets rallying in anticipation of U.S. and European economic stimulus efforts, trade data showed on Friday.

Led by surges in gold, oil and grains prices, the speculators -- known by the regulatory moniker "managed money" -- increased their bullish net long positions to above $111 billion (69 billion pounds) in the week to Sept 4, according to Reuters calculations of data issued by the U.S. Commodity Futures Trading Commission.

The last time managed money positions in commodities crossed $111 billion was in the week to September 6, 2011.

On a weekly basis, hedge funds and other big speculators pumped a notional value of nearly $4 billion into U.S. commodity markets, building up net longs for a third straight week, the CFTC data showed.

Commodity markets have seen renewed vigor since August after persistently weak U.S. jobs data and the stubborn euro zone debt crisis led investors to conclude that inflation-boosting stimulus measures may be the only solution.

Gold prices rushed to a six-month high this week after the European Central Bank unveiled a new and potentially unlimited bond purchase plan to lower borrowing costs of debt-laden nations, in the latest effort to fight the euro zone crisis.

Copper hit a near four-month high and oil rallied too as investors speculated the Federal Reserve will launch a third round of quantitative easing or bond buying to help U.S. economic recovery.

The Fed is due to hold a policy meeting next Wednesday and Thursday. Focus on the possibility of QE3 intensified after monthly jobs data from the Labor Department showed U.S. nonfarm payrolls increased only by 96,000 in August, against market expectations for a 125,000 rise.

Any Fed easing tends to boost asset prices, including commodities, as it weakens the dollar. The dollar fell to as low as $1.2806 against the euro on Friday, its weakest level since late May.

Total speculative holdings in 22 futures and options markets tracked by the CFTC rose 2.4 percent, or by nearly 1.5 million contracts, in the week to September 4, up for a third week in a row.

The notional outright value of overall net long speculative holdings rose to $111.26 billion.

The notional figures are calculated by Reuters based on the change in net positions from a week ago, multiplied by the contract's value at the end of the period. Because most investors trade commodities on margin, the change in the value of positions is not directly equivalent to total investment.

The total value of holdings is only a portion of the amount of investor capital estimated to be allocated to commodity markets worldwide, much of which is invested in over-the-counter contracts, physical exchange funds or credit notes, or via banks, which are classified differently by the CFTC.

Additional CFTC data can be found at the CFTC website here