Hedge funds cut bullish gold bets, adding the most short contracts in four weeks, as U.S. economic growth fuels speculation the Federal Reserve will trim stimulus. Holdings across commodities dropped the most since April.
The net position in gold slid 13% to 87,689 futures and options in the week ended Nov. 5, U.S. Commodity Futures Trading Commission data show. Short bets jumped 37%, the most since Oct. 15, and long wagers fell 4.9%. Combined holdings across 18 U.S.-traded commodities dropped 20% to 658,263 contracts as investors cut cotton positions to the lowest this year and crude-oil bets to the fewest since June.
Gold has tumbled 23% this year, heading for the biggest drop since 1981, as some investors lost faith in the metal as a store of value. U.S. payrolls in October rose more than forecast, and the economy expanded at a faster pace than estimated last quarter, government reports showed last week, reviving concern the Fed may curb bond buying that helped fuel growth. Barclays Plc and Credit Suisse AG are predicting lower commodity prices as supplies increase.
The “U.S. economy is showing ample signs that it is growing, and that means the Fed will start looking at tapering either end of this year or early next,” said Dan Heckman, a Kansas City-based national consultant for U.S. Bank Wealth Management, which oversees about $112 billion. “We are underweight on commodities as the support of stimulus will go away at a time when supplies are rising and worries about Europe are increasing.”
Futures tumbled 2.2% to $1,284.60 an ounce last week on the Comex in New York. Prices, which slumped into a bear market in April, are poised for the first annual drop since 2000. Futures fell 0.2% to $1,282 today.
From December 2008 to June 2011, gold rose 70% as the Fed pumped more than $2 trillion into the financial system by purchasing debt. Fed Bank of Atlanta President Dennis Lockhart said Oct. 8 that the central bank will consider reducing its $85 billion of monthly bond buying at the December policy meeting.
The Standard & Poor’s GSCI Spot Index of 24 commodities fell 0.4% last week, matching the slide in the MSCI All- Country World Index of equities. The Bloomberg Dollar Index, a gauge against 10 major trading partners, rose 0.6%, and the Bloomberg U.S. Treasury Bond Index lost 0.5%.
Bullion will probably hold near $1,300 until year-end and then decline to $1,050 at the end of 2014 as an improving U.S. economy prompts less stimulus, Goldman Sachs Group Inc. wrote in a report on Oct. 18.
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