Gold Bulls Cut Wagers as Growth Quickens

August 5, 2013 at 08:33


Hedge funds lowered bullish gold bets for the first time in five weeks as signs of accelerating U.S. growth contributed to the longest retreat in prices in a month.

Money managers cut their net-long position by 6.5 percent to 65,517 futures and options by July 30, U.S. Commodity Futures Trading Commission data show. Holdings of short contracts rose 6.8 percent, the biggest increase in six weeks. Net-bullish bets across 18 U.S.-traded commodities contracted 15 percent as investors cut wagers on higher crude prices for the first time in a month and more than doubled bearish bets on copper

The U.S. economy grew at a faster pace than previously forecast in the second quarter, the Commerce Department said July 31. Manufacturing expanded in July at the fastest pace in more than two years, and the unemployment rate dropped to the lowest since December 2008, government reports showed last week. Gold tumbled 21 percent this year as U.S. expansion prompted speculation the Federal Reserve taper stimulus.

“The economy is healing, and if the economy is healing then it doesn’t require the assistance of the Fed,” said John Stephenson, who helps oversee about C$2.7 billion ($2.6 billion) at First Asset Investment Management Inc. in Toronto. “Whether tapering happens tomorrow or next year, it’s coming, and the market knows it.”

Gold futures declined 0.9 percent last week, the first drop since the week ended July 5. Prices capped a four-day losing streak on Aug. 2, the longest since June 27. Twelve analysts surveyed expect the metal to fall this week, nine are bullish and four neutral, the first time the bears have dominated in six weeks.

The Standard & Poor’s GSCI Spot Index (BUSY) of 24 commodities lost 0.5 percent this year. The MSCI All-Country World Index of equities advanced 11 percent as U.S. equities reached a record. U.S. gross domestic product climbed at a 1.7 percent annualized rate in the three months ending June 30 after a 1.1 percent increase in the prior quarter, government data show.

The figures signaled the Fed may begin curbing its $85 billion of monthly debt purchases in September, Eric Green, an economist at TD Securities Inc. said in a report July 31.

Holdings in global exchange-traded products backed by the metal dropped 25 percent this year to the lowest since May 2010, erasing $59 billion from their combined value. Bullion rose 70 percent from December 2008 to June 2011 as the Fed bought more than $2 trillion of debt.

This year’s declines hurt profits at funds run by billionaire John Paulson and for mining companies including Barrick Gold Corp. (ABX) that have announced at least $21 billion in writedowns in the past two months. U.S. expansion will accelerate in the current quarter and at least the following four quarters, according to the median of as many as 101 economist estimates compiled.

Greenlight Capital Re Ltd., the reinsurer headed by hedge-fund manager David Einhorn, sold “a small amount” of bullion to buy shares of gold-mining stocks that were in “free fall,” Einhorn said on a conference call July 30. Their view on the metal hasn’t changed, he said. The Philadelphia Stock Exchange Gold & Silver Index of 30 mining companies plunged 34 percent in the three months ended June 30, compared with a 23 percent drop for gold futures.

The Fed’s Open Market Committee, which sets the course of policy, cited the risk of low inflation in pledging to keep buying bonds every month after a two-day meeting concluded July 31. St. Louis Fed President James Bullard said Aug. 2 that the central bank should wait for evidence the labor market and economy are strengthening before tapering purchases.

U.S. payrolls increased by 162,000 in July, the least in four months, and hourly earnings fell for the first time since October, government figures showed Aug. 2.

“The jobs report was disappointing,” said Richard Sichel, who oversees about $1.9 billion as chief investment officer at Philadelphia Trust Co. “There’s another message there to the Fed to keep waiting. No rush to do things. No tapering in the near future, which makes the dollar a little bit weaker and gold a little stronger.”

Gold prices added 7.3 percent in July, the biggest monthly gain since January 2012. The rally was “nothing more than a correction to an ongoing downtrend,” Societe Generale analysts said in a note Aug. 1. They expect “large-scale” selling in ETFs to continue through 2014.