Hedge funds added bullish gold wagers at the fastest pace since June as central bank action from China to Japan and Europe helped stem the rout in prices.
The net-long position in New York futures and options expanded 56 percent, U.S. government data show. Short holdings fell to a two-month low and long wagers climbed for the first time in four weeks.
Prices touched a three-week high Friday after China lowered its key interest rate for the first time since July 2012. The European Central Bank and Bank of Japan also added stimulus to shore up expansion. Gold dropped on Nov. 7 to the lowest level since 2010 as a strengthening U.S. economy and dollar fueled bets the Federal Reserve is moving closer to raising borrowing costs.
“Stimulus activity from China and Europe more than supports demand for gold,” Dan Denbow, a money manager at the $800 million USAA Precious Metals & Minerals Fund, said Friday by phone from New York. “Think of it like a level: gold is the bubble moving back and forth. One day gold is focusing on the U.S. dollar, and that would push the bubble down, but all these stimulus measures come in, and that would push the bubble up.”
Futures climbed 1.1 percent to $1,198.40 an ounce last week on the Comex in New York. The Bloomberg Commodity Index of 22 raw materials advanced 1.1 percent as the MSCI All-Country World Index of equities gained 1.2 percent. The Bloomberg Dollar Spot Index rose 0.7 percent.
The net-long position in gold rose by 21,634 contracts to 60,307 futures and options in the week ended Nov. 18, according to U.S. Commodity Futures Trading Commission data published three days later. Short wagers fell to 65,405 contracts, the least since Sept. 9.
Easing by the People’s Bank of China came weeks after the BOJ boosted its asset-buying and hours after President Mario Draghi said the ECB must drive faster inflation and will broaden its asset-purchase program if needed. While dollar-denominated gold is little changed this year, bullion priced in yen has climbed 12 percent and in euros 11 percent.
Russia’s central bank bought about 150 metric tons of the metal this year, Governor Elvira Nabiullina said Nov. 18. Purchases were about 77 tons in 2013, International Monetary Fund data show.
Gold surged 70 percent from December 2008 to June 2011 as central banks increased money supplies on an unprecedented scale, spurring concerns that the pace of inflation would accelerate. The precious metal tumbled 28 percent in 2013, the most in three decades, after some investors lost faith in bullion as a store of value.
Holdings in global exchange-traded funds backed by bullion are at the lowest since 2009 after dropping for five consecutive weeks. Prices fell 14 percent from this year’s high in March as a strengthening U.S. economy drove the dollar to its strongest in five years.
Lower oil costs are helping to keep inflation in check and U.S. equities rose to records. Fed policy makers said the effects of weaker economic growth abroad are “likely to be quite limited” in the U.S., according to minutes of the central bank’s October meeting released Wednesday. The outlook for higher interest rates reduces the allure of the metal, which generally offers investors returns only through increasing prices.
“Gold is facing a dual headwind at the moment, the strength of the U.S. economy against the rest of the world is making the dollar a lot stronger,” Clive Burstow, an investment manager at Baring Asset Management, which oversees $60.5 billion, said by phone Thursday. “Plus, people are beginning to worry when the U.S. will start to raise interest rates.”
Net-bullish holdings across 18 U.S.-traded commodities rose 4.1 percent to 722,785 contracts as of Nov. 18, CFTC data show.
Bullish bets on oil slid 4.1 percent, the government said. West Texas Intermediate climbed 0.9 percent last week, the first gain since September. China’s interest-rate cut helped brighten demand prospects in the world’s biggest energy consumer.
A measure of net-long positions across 11 agriculture commodities fell 2 percent to 455,322 contracts, the first drop in eight weeks.
Investors became bearish on cotton, with a net-short holding of 3,454 contracts, compared with a net-long wager of 14,882 contracts a week earlier, the CFTC said.
The International Cotton Advisory Committee last week raised its outlook for world inventories by 0.6 percent from an October forecast. The U.S. Department of Agriculture has said that American exports in the 12 months ending July 31 will slump to the lowest since 2001. Prices in New York touched a five-year low on Nov. 13.
“There’s a lot of cotton bales sitting in the U.S. that can’t be shipped out,” Tracey Allen, an analyst at Rabobank International in London, said by phone Nov. 21. “We’re going to see a building in U.S. ending stocks this year.”
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