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Power Hour: Gold Bulls Retrench as Price Drops Most in 32 Years: Commodities

December 31, 2013

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Dec. 31 (Bloomberg) -- Hedge funds got less bullish on gold for the seventh time in eight weeks as the U.S. economy strengthens and inflation fails to accelerate, driving prices to the biggest annual drop in more than three decades.

The net-long position in gold fell 12 percent to 28,702 futures and options in the week ended Dec. 24, U.S. Commodity Futures Trading Commission data show. Short holdings gained 1.1 percent to 76,052, a three-week high. Net-bullish holdings across 18 U.S.-traded commodities climbed 4.5 percent to 768,354 contracts as copper wagers gained to a 34-month high.

Investors shunned gold in 2013, halting 12 straight years of price gains. Global equities rallied on improving growth prospects and inflation failed to accelerate, eroding demand for bullion as a preserver of wealth. Assets in exchange-traded products backed by bullion fell to the lowest since 2009 as holders including billionaires George Soros and John Paulson sold. The International Monetary Fund signaled this month the U.S. economy will expand more than forecast.

"Gold is something we avoid," said Michael Shaoul, the chief executive officer of Marketfield Asset Management LLC, which oversees about $17 billion. "The developed economies are growing, and equities remain very interesting, so there is really no reason to be in gold."

Futures in New York retreated 28 percent this year to $1,207.30 an ounce, poised for the first loss since 2000 and the biggest since 1981. The Standard & Poor’s GSCI gauge of 24 commodities slid 2.1 percent, while the MSCI All-Country World index of equities advanced 20 percent. The Bloomberg Dollar Index, a gauge against 10 major trading partners, rose 3.4 percent. The Bloomberg Treasury Bond Index fell 3.2 percent.

 

Record Outflows

 

Investors pulled $38.6 billion from gold funds this year, the most in data going back through 2000, according to EPFR Global, a research company. Futures settled at a three-year low on Dec. 19, a day after the Federal Reserve cut the pace of its monthly bond purchases to $75 billion from $85 billion, easing concern that inflation would accelerate. U.S. consumer prices were unchanged in November after a 0.1 percent drop the prior month, according to Dec. 17 data from the Labor Department.

U.S. pending home sales climbed 0.2 percent in November, the first gain in six months, the National Association of Realtors said yesterday. There’s a "much stronger outlook" for U.S. growth in 2014, IMF Managing Director Christine Lagarde said in an interview broadcast Dec. 22 on NBC’s "Meet the Press."

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