Hedge funds accumulated their second-biggest bet against gold on record just as prices rallied the most in 15 months on surging demand for coins and jewelry and Goldman Sachs Group Inc. ended a recommendation to sell.
The funds and other large speculators held 69,726 so-called short contracts on April 23, within 0.6 percent of the all-time high reached six weeks earlier, U.S. Commodity Futures Trading Commission data show. The net-long
position dropped 25 percent to 46,168 futures and options. Net-bullish wagers across 18 U.S.-traded raw materials slid 5 percent, the third decline in four weeks, with cuts in silver, corn and gasoline.
Premiums paid by jewelers in India, the biggest importer, to secure supply surged as much as fivefold in 10 days. Photographer: Dhiraj Singh/Bloomberg
April 19 (Bloomberg) -- Nigel Moffatt, treasurer at the Perth Mint, talks about the demand outlook for gold. Shoppers in China lined up for gold this week, while in Hong Kong they rushed to buy bracelets and in India sought jewelry for weddings not set until December. The metal’s biggest price drop in three decades provoked the clamor. Moffatt speaks with Zeb Eckert on Bloomberg Television's "First Up." (Source: Bloomberg)
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Bullion rallied 11 percent since reaching a two-year low April 16. The
U.S. Mint ran out of its smallest gold coin last week, with
sales across its products poised for the best month since December 2009, and the U.K. Mint said purchases tripled. Premiums paid by jewelers in
India (XAUINR), the biggest importer, to secure supply surged as much as fivefold in 10 days. Goldman said April 23 it closed a bearish recommendation, while saying further declines are likely.
“It’s bizarre that the price has come back so rapidly,” said
Donald Selkin, who helps manage about $3 billion of assets as the chief market strategist at National Securities Corp. in New York. “After the big decline, demand jumped like crazy. It’s the old rubber-band theory: You stretch too far, and eventually, it snaps back. Banks came in to buy, and there is record demand for coins around the world.”
Gold Rally
Gold futures jumped 4.2 percent to $1,453.60 an ounce on the Comex in
New York last week, the most since January 2012. Analysts are the most bullish in a month, with 15 anticipating higher prices this week. Eleven are bearish and three neutral, according to a Bloomberg survey. The contract for June delivery advanced 1.3 percent to $1,472.30 by 7:10 a.m. in New York.
The Standard & Poor’s GSCI Spot Index of 24 commodities climbed 2.4 percent last week and the MSCI All-Country World Index of equities gained 2.3 percent. The dollar slid 0.3 percent against a basket of six currencies, while Treasuries returned 0.2 percent, a Bank of America Corp. index shows.
Bullion tumbled into a
bear market April 12 and plunged 9.3 percent in the next session, the biggest drop in 33 years. The retreat underscored how some investors had lost faith in the traditional store of value, even as central banks printed money on an unprecedented scale to boost growth. The slump spurred buyers across the world to increase their physical holdings, and billionaire
John Paulson, the biggest investor in the largest exchange-traded product backed by bullion, reiterated his bullish view on prices.
Bullion Association
A surge in demand in
Turkey is causing delays in coin deliveries by the Istanbul-based mint, Chief Executive Officer Sadettin Parmaksiz told Haberturk newspaper on April 19. The Perth mint has seen an “enormous number of people” buying gold, with interest from
India,
Thailandand
China, Treasurer Nigel Moffatt said on Bloomberg Television April 19. Jewelers in India are paying premiums of as much as $10 an ounce, from $2 just 10 days earlier, according to the Bombay Bullion Association.
Demand has also come from central banks, owners of about 19 percent of all the metal ever mined. Russia and
Kazakhstan boosted official reserves for a sixth month, International Monetary Fund data show. Central banks will buy as much as 550 tons this year after boosting holdings by 534.6 tons last year, the most since 1964, the World Gold Council estimates.
Gold ETPs
Goldman exited its bet on lower prices last week after issuing a sell recommendation April 10. The bank said gold’s decline has been “surprisingly rapid.” Prices may still continue to fall as investors’ conviction in holding the metal wanes, analysts including Samantha Dart and
Jeffrey Currie said in the April 23 report.
Holdings in global
ETPs (.GLDTONS) slumped 13 percent to 2,283.57 tons this year, the lowest since October 2011. Hedge funds expanded short
wagers 17 percent to more than quadruple the average since 2006, when the CFTC data begins.
Prices fell this month as equity markets rallied on improving global growth and weakening expectations for inflation. The Standard & Poor’s 500 Index of equities has more than doubled from its 12-year low in 2009, reaching an all-time high on April 11. Inflation
expectations as measured by the break-even rate for five-year Treasury Inflation Protected Securities on April 18 reached the lowest since November.
Net Outflows
“People are finally embracing equities,” said Troy Gayeski, partner and senior portfolio manager at New York-based SkyBridge Capital, which manages $7.4 billion of assets. “Investors woke up and said ‘Why do we own this?’. That’s when the gold selling started.”
Money managers took $2.6 billion from commodity funds in the week ended April 24, according to
Cameron Brandt, the director of research for Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Outflows from gold and precious-metals funds totaled $2.15 billion, he said.
Investors cut their
silver net-long position by 26 percent to 5,689 contracts, the CFTC data show. Prices in New York jumped 3.4 percent last week, the most since January.
The hedge funds narrowed bets on a decline in copper to a net-short position of 15,727 contracts, from 27,412 a week earlier, the CFTC data show. Bullish oil wagers slid 0.3 percent to 182,408, the third decline. Palladium and platinum holdings also fell for a third week.
Grain Production
A measure of speculative positions across 11 agricultural products gained 1.1 percent to 106,391 contracts, a second consecutive gain.
Holdings (.AGLOSH) are rebounding after touching 56,404 on April 9, the lowest in more than six years. The S&P GSCI Agriculture Index of eight components slumped 1.9 percent last week and touched the lowest since June on April 24.
U.S. planting should increase as warm, dry weather firms muddy soils for farm machinery, Global Weather Monitoring said April 26. World grain production will increase 7 percent this season to 1.91 billion metric tons, as wheat output gains 3.8 percent, the London-based International Grains Council said a day earlier. The global corn crop will surge 10 percent.
“Unless we have a really bad summer, it’s tough for me to see a run up in grain prices,” said Rob Haworth, a senior investment strategist in
Seattle at U.S. Bank Wealth Management, which oversees about $110 billion of assets. “In gold, we have some anecdotal signs of increased demand in the physical markets from China and India as they tend to bottom fish. We’ve found a temporary pause.”
