Speculators increased wagers on rising commodity prices by the most since August 2010 on signs that sustained economic growth will drive a rebound in raw materials from their first annual slump since the recession.
Hedge funds and other money managers increased combined net-long positions across 18 US futures and options by 18% to 536,907 contracts in the week ended December 27, Commodity Futures Trading Commission data show.
Soya bean holdings jumped more than ninefold and those for corn reached a five-week high. Speculators trimmed bets on declining prices for copper, cocoa, wheat, and soya bean oil and meal.
While the Standard & Poor’s GSCI Total Return Index of 24 commodities declined 1.2% last year, it rallied 12% from a 10-month low reached in October on mounting optimism about growth. Confidence among American consumers rose in December to the highest level in eight months and pending sales of existing homes jumped in November for a second month. More than $3.3 trillion was added to the value of global equities since October 4, data compiled by Bloomberg show.
“The US is certainly putting the floor on commodities,” said James Paulsen, the chief investment strategist at Minneapolis-based Wells Capital Management, which oversees about $330 billion of assets. “Data out of the US flies in the face of recession. More and more people are saying: ‘Maybe things are not that bad.’”
The S&P GSCI Total Return Index rose 9% last quarter, snapping two consecutive three-month drops. The MSCI All-Country World Index of equities rose 6.7%, the most in a year. The US Dollar Index (DXY), a measure against six trading partners, gained 2.1%, the second straight quarterly advance, while the yield on 10-year Treasuries slid 2.1%, Bloomberg Bond Trader prices show.
Twelve of the 24 raw materials tracked by the S&P GSCI rose last week. Gains were led by wheat traded in Kansas City , which surged 6.2%. Cotton climbed 5.2%.
On a total return basis, commodities lost 1.2% last year, the first annual drop since 2008, as Europe’s debt crisis escalated and China’s economic growth cooled. Money managers have cut bets on higher prices by 65% since this year’s high in April.
More than $10 trillion has been wiped off the value of global equity markets since May 1 as markets were roiled by concern that the world would tumble into recession.
Investors withdrew $936 million from commodity funds in the week ended December 28, according to data from EPFR Global, which tracks investment flows. “Gold and precious-metals outflows accounted for $688 million, while $248 million was withdrawn from other commodities,” said Cameron Brandt, the director of research at the Cambridge, Massachusetts-based research company. Inflows totalled $12.8 billion last year, of which $8.1 billion was into bullion, EPFR said.
“We have seen people reducing risks, and the future of commodities largely depends on whether Europe and US can avoid a recession,” said Nic Johnson, who helps manage $30 billion in commodity assets at Pacific Investment Management in California.