Hedge funds got less bullish on gold before prices dropped to the lowest level since 2010, leaving the metal poised for the worst annual loss in 32 years as investors dump bullion at a record pace.
Money managers reduced their net-long position by 2.8% to 32,524 futures and options in the week ended Dec. 17, U.S. Commodity Futures Trading Commission data show. Short holdings climbed 1.2% to 75,199, within 6% of the record reached in July. Net-bullish holdings across 18 U.S.- traded commodities rose 8.5% to a seven-week high, led by soybeans, natural gas and cotton.
Investors pulled $38.8 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 in New York, a day after the Federal Reserve cut the pace of its monthly bond purchases. Prices plunged 37% since reaching a record in September 2011, U.S. equities climbed to an all-time high and the dollar is poised for its strongest annual performance since 2008.
“Gold was probably one of the easiest shorts of all time,” said Uri Landesman, the president of New York-based hedge fund Platinum Partners who helps manage about $1.3 billion of assets. “It has fallen out of favor because people felt its general security wasn't needed in this market. People wanted to take on risk this year.”
Bullion reached $1,186 an ounce on Dec. 19, within $6.60 of this year's low reached in June. Thirteen analysts surveyed by Bloomberg News expect gold to fall this week, 10 are bullish and four neutral. That's the fourth bearish outlook in five weeks.
Futures slumped 29% this year to $1,194.10 an ounce, poised for the first loss since 2000. The Standard & Poor's GSCI gauge of 24 commodities slid 1.5%, while the MSCI All- Country World index of equities jumped 18%. The Bloomberg Dollar Index, a gauge against 10 major trading partners, rose 3.5%. The Bloomberg Treasury Bond Index fell 2.9%.
Gold “is now likely to grind lower throughout 2014”, Jeffrey Currie, the head of commodities research at Goldman Sachs Group Inc. in New York, said in a telephone interview Dec. 19. Prices will reach $1,050 by the end of 2014, the bank said in a Nov. 20 report. Societe Generale SA and Bank of America Merrill Lynch are also forecasting more declines.
The Fed said last week that it will cut monthly asset purchases, known as quantitative easing, to $75 billion from $85 billion. Policy makers raised their assessment of the employment outlook, predicting the jobless rate will fall as low as 6.3% by the end of next year, compared with a September forecast of 6.4% to 6.8%.
Gold rose 70% from December 2008 to June 2011 as the U.S. central bank pumped more than $2 trillion into the financial system by purchasing debt, increasing concern that inflation would accelerate.
Accelerating economic growth may eventually bring higher consumer prices and revive demand for gold as a hedge against inflation, said Tom Winmill, who helps manage about $250 million of assets in Walpole, New Hampshire, for Midas Funds.
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, “especially if projected inflation continues to run below” the 2% goal, the Fed said in its statement.