Money managers cut combined net-long positions across 18 U.S. futures and options by 9.6 percent to 532,521 contracts in the week ended Dec. 13, Commodity Futures Trading Commission data show. That’s the lowest since April 28, 2009. Wagers on gold dropped to an eight-week low and coffee holdings tumbled 60 percent, the most since August.

Funds are less bullish after Moody’s Investors Service said it is reviewing Europe’s ratings and the International Monetary Fund said the region’s fiscal crisis is “escalating.” Europe accounts for 19 percent of global copper demand and consumes about one in six barrels of the world’s oil. Manufacturing in China, the biggest buyer of everything from nickel to soybeans, may contract for a second month, a private survey showed.

“For most people, the fetal position is quickly becoming their portfolio position,” said John Stephenson, who helps manage $2.6 billion of assets at First Asset Investment Management Inc. in Toronto. “It could get a lot uglier.”

The Standard & Poor’s GSCI Index of 24 commodities dropped 4.5 percent last week, the most since mid-September, led by industrial and precious metals. The MSCI All-Country World Index fell 3.4 percent as more than $1.7 trillion was wiped off the value of global equities. The U.S. Dollar Index, a measure against six trading partners, climbed 2.1 percent. The yield on 10-year Treasuries dropped 21 basis points, or 0.2 percentage point, to 1.85 percent according to Bloomberg Bond Trader prices.

Avoid a Recession

Goldman Sachs said in a report Dec. 1 that the world is likely to avoid a recession and maintained its “overweight” allocation to commodities, predicting a 15 percent return in the next 12 months. That is still the bank’s view, Sophie Bullock, a London-based spokeswoman for Goldman, said in an e-mail response to questions on Dec. 15.

“We are cautiously positive on commodities, and that view hasn’t changed,” said Sudakshina Unnikrishnan, an analyst at Barclays Capital in London. A close balance between supply and demand across raw materials “could drive a strong price rebound in early 2012,” the bank said in a report this month.

Bear Market Outlook

The S&P GSCI gauge tumbled 19 percent since reaching a 32- month high in April. Cooling expansion in emerging markets will spur further declines for raw materials, according to Michael Aronstein, the investor who said in early May that commodities were entering a multiyear bear market.

“People are just coming around to the understanding that things in the developing world are in a fairly serious retreat,” said Aronstein, the president of Marketfield Asset Management in New York, who correctly predicted the 2008 slump that drove the S&P GSCI down 66 percent in seven months.

Chinese factory output may decline for a second month in December as Europe’s debt crisis weighs on exports and home sales slide, preliminary results from a Markit Economics survey indicated on Dec. 15. In the euro area, manufacturing may contract for a fifth consecutive month, a separate report from London-based Markit Economics showed.

Options traders are paying the most since August 2010 to protect against losses in Chinese stocks. The Asian nation’s gross domestic product will grow by 8.5 percent in 2012, down from 9.2 percent this year and 10.4 percent in 2010, according to the median estimate of 15 economists surveyed by Bloomberg.

Economic Growth

The euro dropped below $1.30 last week for the first time since January on signs of rising funding stress in the region. German Chancellor Angela Merkel said there is no easy solution to the crisis after rejecting an increase in the upper limit of funding for a permanent bailout program.

“The macro outlook remains poor heading into 2012 with risks skewed to the downside,” Morgan Stanley commodity analysts led by New York-based Hussein Allidina said in a report Dec. 16. “We are in the early stages of a multiyear deleveraging and de-globalization cycle.”

A crunch in financing for commodity trading, spurred by “aggressive, sustained European bank deleveraging,” may send raw-material prices plunging next year, Deutsche Bank AG said in a report Dec. 5.

Commodity Funds

Investors put $156 million into commodity funds in the week ended Dec. 14, according to data from EPFR Global, which tracks investment flows. Gold and precious metal net inflows were $738 million, while non-precious metal commodities had a net outflow of $582 million, said Cameron Brandt, the director of research at the Cambridge, Massachusetts-based research company.

Funds trimmed their net-long position in gold by 11 percent to 135,117 contracts, the lowest since Oct. 18, the CFTC data show. Holdings have dropped in three of the past four weeks.

Gold futures in New York slumped 6.9 percent last week, the most since Sept. 23, as a strengthening dollar curbed demand for precious metals as a haven. Bullion is headed for its first quarterly decline in more than three years.

Traders are the least bullish on gold since July. Ten of 21 surveyed by Bloomberg expect the metal to gain this week, the lowest proportion since July 29.

A measure of 11 U.S. farm goods showed speculators lowered bullish bets in agricultural commodities by 15 percent to 219,989 contracts, the lowest since March 2009. Investors boosted their bearish cocoa bets by 50 percent, and increased their net-short position in wheat by 11 percent, CFTC data show.

“We have the perfect storm at several levels, with the European situation and slowing in China,” said Shonda Warner, the managing partner of Chess Ag Full Harvest Partners in Clarksdale, Mississippi, which oversees about $50 million of assets. “Emerging markets have been the engine of growth, and when they’re slowing, it’s really going to freak people out.”