Gold Bears Return Before Yellen Signals More Easing: Commodities

November 18, 2013 09:00 AM

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Nov. 18 (Bloomberg) -- Investors got less bullish on gold as hedge funds doubled their short holdings just before prices erased a weekly loss and Janet Yellen pledged to press on with economic stimulus if confirmed as Federal Reserve chairman.

The net-long position in gold slumped 37 percent to 55,456 futures and options in the week ended Nov. 12, U.S. Commodity Futures Trading Commission data show, the biggest drop since February. Short bets climbed to 54,143, the highest since mid- August, from 26,490 a week earlier. Net-bullish wagers across 18 U.S.-traded commodities dropped 12 percent to 576,224 contracts as investors became more bearish on wheat and cut their silver holdings by the most in five months.

Gold is heading for the first annual loss since 2000 after some investors lost their faith in the metal as a store of value. Global equities advanced to the highest in almost six years and U.S. inflation is running at 1.2 percent, half the rate of the past decade. Bullion reached a record in 2011 as the Fed pumped more than $2 trillion into the financial system. Gold rallied as Yellen said Nov. 14 she’s ready to back stimulus until she sees robust economic growth.

"People were feeling very bearish before Yellen’s statement," said Donald Selkin, who helps manage about $3 billion as the New York-based chief market strategist at National Securities Corp. "Her comments were dovish and can be seen as a postponement to tapering, which is definitely helpful for gold. But, the main reasons why gold has fallen are intact. Inflation is low, and equity markets continue to march ahead."


Gold Rebound


Futures tumbled 3.7 percent in the five sessions before Yellen’s testimony before the Senate Banking Committee. Prices rebounded 1.5 percent in the next two days, erasing the week’s losses and capping the biggest two-day rally since Oct. 22. Eighteen analysts surveyed by Bloomberg News expect prices to gain this week, nine are bearish and two neutral, the largest proportion of bulls since Oct. 4.

Gold slumped 24 percent this year on the Comex in New York, heading for the biggest annual loss since 1981. The Standard & Poor’s GSCI gauge of 24 commodities fell 5.2 percent. The MSCI All-Country World Index of equities gained 18 percent, while the Bloomberg Dollar Index, a gauge against 10 major trading partners, rose 2.9 percent. The Bloomberg Treasury bond Index lost 2.3 percent.


Central Banks


The U.S. economy and job markets are performing "far short of their potential," and the Fed will ensure monetary policy isn’t removed too soon, Yellen said. The comments echo other monetary officials working to combat stagnant economic growth. The European Central Bank cut its key rate on Nov. 7 in a bid to prevent slowing inflation. The same day, Czech policy makers said they were intervening in the currency market for the first time in 11 years to weaken the koruna.

Gold rose 70 percent from December 2008 to June 2011 as the Fed expanded its balance sheet through debt purchases, fueling expectations of accelerated inflation and a weaker dollar. President Barack Obama nominated Yellen, the bank’s vice chairman, last month to succeed Chairman Ben S. Bernanke, whose term expires Jan. 31.

Investor appetite for the precious metal waned this year as inflation failed to accelerate and the S&P 500 Index of shares reached all-time highs. Global bullion demand tumbled 21 percent last quarter as investors pulled 118.7 metric tons out of exchange-traded funds and similar products, World Gold Council data show.


Inflation Expectations


Inflation expectations as measured by the break-even rate for five-year Treasury Inflation Protected Securities fell 14 percent this year.

Global gold ETP holdings slumped 29 percent this year, reaching the lowest since 2010 last week, while more than $64 billion was wiped from the value of assets, data compiled by Bloomberg show. Prices fell 33 percent since reaching a record $1,923.70 in September 2011.

"The danger for gold is it’s in the middle of a significant bear market move, rather than having completed one," said Michael Shaoul, chairman and chief executive officer of Marketfield Asset Management LLC, which manages $17 billion. "I don’t think Yellen has said anything of any consequence. We all knew she was dovish, and the market had worked out what she would say."

Billionaire hedge fund manager John Paulson, who cut his gold holdings by more than half in the second quarter, maintained his bet on the metal over the next three months as prices rebounded, government data showed last week. Bullion rose 8.4 percent in the third quarter, the first gain in a year.


Paulson View


Paulson & Co., the largest investor in the SPDR Gold Trust, the biggest exchange-traded product for the metal, held 10.23 million shares as of Sept. 30, unchanged from June 30, according to a government filing on Nov. 14. Billionaire George Soros took a stake in the Market Vectors Gold Miners ETF.

The risk of "high inflation in the future" makes gold a desirable long-term investment, Paulson & Co. has said. The view contrasts with Goldman Sachs Group Inc.’s Jeffrey Currie, who has said bullion is a "slam dunk" sell in 2014. The bank forecast prices at $1,100 in 12 months in an Oct. 18 report.

Bullish bets on crude oil fell 4.3 percent to 223,733 contracts, the lowest since June, the CFTC data show. West Texas Intermediate fell 0.8 percent to $93.84 a barrel, the sixth weekly decline and the longest stretch of losses in 15 years.


Crude Supplies


U.S. crude-oil stockpiles climbed for an eighth week as output expanded to the highest since January 1989, data from the Energy Information Administration showed. Horizontal drilling and hydraulic fracturing, or fracking, have unlocked supplies in shale formations in North Dakota, Texas and other states.

Speculators turned bearish on copper, with bets on price declines outnumbering wagers on gains by 8,117 contracts in futures and options. That’s the first time investors turned net- short since Sept. 17. Copper futures slumped 2.2 percent in New York last week, the biggest drop since late August.

A measure of speculative positions across 11 agricultural products was little changed at 362,838 contracts, up 0.1 percent from a week earlier, the CFTC data show. The S&P’s Agriculture Index of eight commodities tumbled 20 percent this year.

Money managers held a net-short position in wheat of 47,251 contracts, compared with 19,535 a week earlier. Investors have been betting on price declines for corn since June, and are also bearish on coffee and soybean oil. Cotton holdings fell to the lowest since December and cocoa wagers fell last week for the first time since July.


Record Crops


U.S. farmers will collect a record harvest of 13.989 billion bushels of corn this year, the Department of Agriculture said on Nov. 8. Global coffee output will exceed consumption for a fourth season in 2014, the longest glut in 11 years, the USDA estimates.

"The fundamental issue of oversupply for several commodities is a reality," said Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees about $110 billion of assets. "We saw some temporary interest come into commodities because of Yellen, but we don’t think the story has changed. The Fed will have to slow the stimulus at some point."


--Editors: Millie Munshi, Steve Stroth


To contact the reporters on this story: Luzi Ann Javier in New York at; Debarati Roy in New York at


To contact the editor responsible for this story: Millie Munshi at

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