Hedge funds got less bullish on gold for the seventh time in eight weeks as signs of accelerating U.S. economic and tame inflation growth drive prices to the worst 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 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 $1,203.80 an ounce, poised for the first loss since 2000 and the biggest since 1981. The Standard & Poor’s GSCI Spot Index of 24 commodities slid 1.7 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 3.3 percent.
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. 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.”
Prices are “likely to grind lower” through 2014, Jeffrey Currie, the head of commodities research at Goldman Sachs Group Inc. in New York, said in a telephone interview Dec. 19. The metal will reach $1,050 by the end of 2014, the bank said in a Nov. 20 report. The Fed will probably cut its bond purchases in $10 billion increments over the next seven meetings before ending the program in December 2014, according to a Bloomberg survey of economists conducted on Dec. 19.
The improving economic growth that’s prompted investors to flock to equities may eventually bring more inflation and revive demand for bullion, according to Jim Russell, who helps oversee $113 billion as a Cincinnati-based senior equity-strategist for U.S. Bank Wealth Management.
Inflation expectations as measured by the break-even rate for five-year Treasury Inflation Protected Securities climbed 1.7 percent in December, snapping two months of declines. Policy makers may hold interest rates near zero percent even if unemployment falls below the 6.5 percent rate the central bank previously cited as a likely catalyst for an increase, the Fed said in its Dec. 18 statement.
Gold surged more than 500 percent in the 12 straight years of gains through 2012 as the dollar weakened. The rally accelerated from December 2008 to June 2011 as the Fed expanded its balance sheet through debt purchases and held borrowing costs at a record low in a bid to revive growth amid a U.S. recession. Bullion reached a record $1,923.70 in September 2011.
“While there are no immediate worries about inflation, it can’t be ruled out in the future with economic growth accelerating in some parts of the world,” said Jeff Sica, who helps oversee more than $1 billion of assets as president of Sica Wealth Management in Morristown, New Jersey. “Gold will find support at lower prices with interest rates hovering near zero.”
Holdings in the 14 biggest gold ETPs plunged 33 percent since the end of December to 1,767.1 metric tons, on pace for the first annual decrease since the funds started trading in 2003, data compiled by Bloomberg show. The removals, along with slumping prices, erased $73.8 billion in the value of the assets.
Billionaire John Paulson, the largest holder in the SPDR Gold Trust, the biggest ETP, said on Nov. 20 that he personally wouldn’t invest more money into his gold fund because it’s not clear when inflation will quicken. Soros sold his entire stake in the SPDR Gold Trust in the second quarter.-Bloomberg
