Economic Good News Boosts Bullish Bets

February 20, 2012 James Heinsman Economic Barometer

Commodities: Gold, Silver, Wheat, Corn, Soybeans, Cotton

Optimism about the economy here and abroad is urging hedge funds to increase bets on commodities to the highest point they have been in close to five months. News about a plan for a Greek return to economic stability and more significant signs of economic growth in the US will help to increase demand while supply decreases for commodities ranging from soybeans to copper.

Hedge fund money managers stimulated net-long positions in 18 different futures and options by 2.9 percent; 956,313 contracts were created during the week ending on February 14. That number was the highest number of contracts since September 20, 2011, according to government data. For seven weeks in a row silver holdings rose, the longest advance in close to three years. Soybean bets went up by 29 percent, reaching a five-month high.

In wake of the confidence expressed by euro-area leaders that there will be an agreement on a Greek economic rescue strategy, the Standard and Poor’s GSCI Spot Index of 24 commodities came to a six-month pinnacle on February 17.  News from the US economy was also positive, with reports last week on the US housing market and manufacturing surpassing the predictions of many analysts. In addition unemployment numbers seem to be improving as claims for benefits shrank to a four-year low. According to exchange data investments in raw-material futures climbed by 13 percent so far this year.

“We are seeing confidence return to the market,” said James Paulsen, 53, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees about $330 billion of assets. “The U.S. is doing well. Europe is trying to resolve its issues. Going forward, we will see commodities move up significantly.”

“The market wants to go up, and we have had a good start even if it’s with low conviction,” said John Stephenson, who helps manage $2.7 billion of assets at First Asset Investment Management Inc. in Toronto. “The macro headwinds may soon turn to tailwinds for the commodity market.”

Commodities, First Asset Investment Management, futures, Hedge Funds, James Paulsen,

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