Hedge funds' commods bullish bets at August lows; gold hit hardest

Date: Monday, October 22, 2012
Author: Barani Krishnan, Reuters

Hedge funds and other big speculators have cut their bullish bets on U.S. commodities to the lowest levels since the end of August, data showed on Friday, as global economic worries pushed prices off their peaks.

Funds have mostly bailed out of gold after bullion's repeated failure in breaching the $1,800-an-ounce mark which market bulls say would presage a new record high.

Agricultural markets have also seen reduced investor interest as the U.S. harvest waned, prompting funds to cut the "long" money they had put on for a continued rise in soybean and corn prices.

In oil, benchmark Brent crude has struggled to recapture the key $120 a barrel level as economic recovery in the United States and China remains doubtful and Europe's debt crisis drags on without a solution.

Data from the Commodity Futures Trading Commission showed the net long position held by hedge funds and other big speculators in U.S. commodities fell in the week to October 16, after a buildup in two earlier weeks.

Reuters' calculations of the CFTC's Commitment of Traders data showed net longs held by the so-called "money managers" in some 22 commodity markets fell by around $3 billion to about $109 billion.

The figures are calculated by Reuters based on the change in net positions from the week before, 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 $109 billion in managed money net longs is the lowest since the week ending August 28, when funds stampeded into commodities ahead of a third round of quantitative easing (QE), or monetary stimulus, announced by the U.S. Federal Reserve.

INVESTORS EXIT AFTER RUSHING IN FOR QE

"People who rushed in for QE expecting to get a significant lift are getting out of the market," said Frank McGhee, head precious metals trader at Integrated Brokerage Services LLC.

Gold futures on New York's COMEX saw an 8-percent drop in net longs. The managed money in U.S. gold fell by $2.4 billion, accounting for more than 85 percent of the week's decline.

In soybeans, large speculators slashed their net longs in Chicago Board of Trade soybean futures to the lowest level in more than seven months as better-than-expected harvest yields pressured prices.

They also cut their bullish bets on corn and boosted their net shorts in wheat as the U.S. Midwest harvest neared its end.

NATGAS, COTTON BUCK TREND WITH FUND INFUSION

Not all commodities saw an exit in long money though.

Funds were especially bullish on natural gas, building on net longs for a third consecutive week. U.S. gas prices have hit 2012 highs on bets the market was undervalued despite mild autumn weather that reduces the need for gas used in heating in the U.S. Northeast.

Cotton has also emerged a darling to investors, with money managers turning net long on the market from a previous net short, after concerns about a supply squeeze in cotton due to the delivery of poor quality fiber to the physical market.

The benchmark cotton contract on New York's ICE Futures rose 8 percent this week, the market's sharpest weekly rally in nearly two years.