Hedge funds most bearish ever on copper, favor gold commodities

Hedge Funds Most Bearish Ever on
Copper, Favor Gold: Commodities

- Bradley Associates

Hedge funds are making the biggest bet against copper on record as global
inventories expand to a nine-year high, while concern that Europe’s debt
crisis will spread spurred the biggest gain in gold bets since 2008.

Speculators raised net-short positions in U.S. copper futures and options by
53 percent to 25,719 contracts in the week ended March 19, according to
Commodity Futures Trading Commission data that begins in 2006. A jump
in bullish bets on corn, gold and natural gas boosted overall holdings across
18 raw materials for a second consecutive week.

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Copper prices are heading for a second consecutive monthly loss in
what would be the longest slump since the end of 2011. Stockpiles
monitored by exchanges in London, Shanghai andNew York stand
at about 873,000 metric tons, or almost five months of North
American demand, and Barclays Plc is forecasting a second annual
surplus. Gold climbed for three weeks, the longest rally in six
months, amid turmoil over Cyprus’s efforts to win a bailout to avert
its financial collapse.

]

“We’re sitting on unprecedented stockpiles of copper and other metals,”
said Jack Ablin, the chief investment officer of BMO Private Bank in Chicago
, which oversees about $66 billion of assets. “Demand has been pretty tepid
for industrial metals. In the global economy, we’re seeing improving growth,
but it’s still at a slow rate.”

Copper dropped 1.5 percent to $3.466 a pound on the Comex last week, the
biggest retreat in a month. The Standard & Poor’s GSCI Spot Index of 24
commodities fell 0.9 percent. The MSCI All-Country World Index of equities
declined 1.1 percent and the dollar rose 0.1 percent against a basket of six
major trading partners. Treasuries returned 0.4 percent, a Bank of America
Corp. index shows.

]

LME Stockpiles

Inventories of copper monitored by the London Metal Exchange jumped 77 percent
this year to 565,350 tons, the highest since October 2003. Supplies tracked by the
Shanghai Futures Exchange are at the highest since the data begins in January 2003.
Chinese imports of the refined metal declined in February to the lowest in 19 months,
while exports rose for a sixth month, government figures showed March 21.

Prices dropped along with most commodities last week as Cyprus neared the brink of
financial collapse, reviving concern that Europe’s debt crisis will erode global growth.
The continent accounts for 18 percent of copper demand, Barclays estimates.
Overnight, Cyprus dodged a disorderly default and unprecedented exit from the euro
currency by bowing to demands to shrink its banking system in exchange for a 10
billion-euro ($13 billion) bailout.

]

Air Conditioners
Sales of air conditioners and orders for electrical equipment suggest
improving demand inChina, Rachel Zhang, an analyst at Morgan Stanley
in Hong Kong, said in a report last week. The nation’s passenger-vehicle
market rose 20 percent to 2.84 million units in January and February in
the strongest start since 2010. The transportation industry accounts for
about 11 percent of the country’s copper use and household appliances
15 percent, according to data compiled by Bloomberg Industries.

]

“The risk appetite has certainly improved over the last several months,” said
Nelson Louie, the global head of commodities at New York-based Credit
Suisse Asset Management, who helps manage $11.3 billion. “The overall
U.S. economy has shown resilience, and China seems to be improving as
well.”

Investors withdrew a net $929 million from commodity funds in the week
ended March 20, saidCameron Brandt, the director of research for
Cambridge, Massachusetts-based researcher EPFR Global, which tracks
money flows. Gold and precious metals had an outflow of $978 million.

]

Gold Gains

Gold prices have risen 1.8 percent in March, heading for the first monthly
gain since September. The metal is still down 4.1 percent this year as the
U.S. unemployment rate fell and assets in exchange-traded products
backed by gold dropped 6.7 percent. Investors increased their bullish
bets by 63 percent to 70,193 contracts, the biggest expansion since
September 2008.

The precious metal has jumped 81 percent since the end of 2008 as
central bank measures intended to stimulate economic growth increased
speculation that inflation will accelerate. TheFederal Reserve on March
20 left unchanged plans to hold its target interest rate near zero percent
as long as U.S. unemployment remains above 6.5 percent. The jobless
rate last month was 7.7 percent.

]

Money managers increased their bullish bets on natural gas to 46,148
contracts, from 2,995 a week earlier, the CFTC data show. Oil wagers
climbed 3.2 percent to 172,268 contracts, and those for gasoline rose 1.4
percent to 77,801 contracts. Natural gas advanced 18 percent this year as
production gains slowed and cold weather bolstered heating demand.

Farm Bets

A measure of speculative positions across 11 agricultural products from
wheat to coffee to cattle increased 9.1 percent to 265,475 contracts, the
highest since Feb. 12.

]

Wagers on higher corn prices increased 66 percent to 145,535 contracts, the biggest
gain since July 2010. Speculators reduced their negative outlook for wheat to 33,457
contracts from a net-short position of 41,519 a week earlier.

Corn stockpiles before the next harvest will fall to 632 million bushels, the lowest
since 1996, theU.S. Department of Agriculture said March 8. The agency raised its
forecast for use of the grain in animal feed by 2.2 percent to 4.55 million bushels.
Soybean inventories may drop to the lowest since 2004.

“Prices are going to be driven by supply-and-demand considerations and technical
factors for each commodity,” said Walter ‘Bucky’ Hellwig, who helps manage $17
billion of assets at BB&T Wealth Management in Birmingham, Alabama. “Crop
inventories are creating support in prices for corn. The copper flows show there are
still doubts about global growth.”

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Hedge funds most bearish ever on copper, favor gold commodities

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Hedge funds most bearish ever on copper, favor gold commodities