As Economy Recovers Managers Withdraw Gold Bets

November 14, 2013 James Heinsman Economic Barometer

Hedge Funds are cutting their bullish bets on gold

Predicting that the Federal Reserve will be reducing stimulus activity to the economy, hedge fund managers have been lowering their bullish bets on gold. Last week managers added the highest number of short contracts in a month, and stakes in commodities fell the most since April.

During the week ending November 5th the total amount invested in gold dropped by 13 percent to 87,689 futures and options, according the data from the US Commodity Futures Trading Commission. On the other hand short bets grew by 37 percent, the highest amount since October 15. Long bets went down 4.9 percent.  The total amount held by investors of 18 US-traded commodities of all types fell by 20 percent, down to 658,263 contracts. Cotton positions are the lowest for the year, and crude-oil bets are the least since June.

The price of gold slid by 24 percent so far this year, heading towards the largest value-loss since 1981, a sign that investors are losing faith in gold as a place to store value. Investors are reacting to the news that October payrolls were higher than expected, and the expansion of the economy is happening at a faster rate than predicted. The economic recovery should lead to reduced government stimulus, such as bond buying, which helped the economy in the past. Barclays Plc and Credit Suisse AG are both saying that commodity prices will most likely head south as supplies increase.

The “U.S. economy is showing ample signs that it is growing, and that means the Fed will start looking at tapering either end of this year or early next,” said Dan Heckman, a Kansas City-based national consultant for U.S. Bank Wealth Management, which oversees about $112 billion. “We are underweight on commodities as the support of stimulus will go away at a time when supplies are rising and worries about Europe are increasing.”

Commodities, Economy, Federal Reserve, Gold,

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