Investors Raise Bullish Bets on Commodities for First Time in Seven Weeks

on Nov 27, 2012
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Bloomberg reported on 27 November 2012 that speculators have raised bullish commodity wagers for the first time since early October as signs of improving economic growth in the world’s two leading economies, the United States and China, pushed prices higher for three consecutive weeks.

**Commodity Bets Turn Bullish**
Official figures showed last week that manufacturing in China, the world’s biggest consumer of everything from copper to cotton, is on track for a November expansion which would be the first positive growth in more than a year. Meanwhile, in the US, consumer confidence improved significantly. This month, more Americans than at any other time in the past decade said that they believe that the country’s economy will improve, while a separate report showed last week that new-home construction in the US climbed to a four-year high in October. This positive data from the world’s two leading economies has boosted commodities prices and speculators raised bullish wagers for the first time in almost two months.

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According to recent Commodity Futures Trading Commission (CFTC) data, in the week ended November 20th, hedge funds and other money managers increased combined net-long positions across 18 US commodities futures and options by 9.6 per cent to 846,321 contracts, marking the biggest gains since mid-August. The CFTC data showed that wagers jumped the most amongst silver, crude-oil and sugar holdings. Meanwhile, a measure of 11 US farm goods showed investors lifted bullish bets in agricultural commodities by 7.4 per cent to 446,348 contracts, with corn holdings leading the pack with a 23 per cent increase to 250,228 contracts. Speculators also boosted their bullish hog bets by 15 per cent to 41,265 contracts, while cattle wagers gained 7.4 per cent to 22,335 contracts.

The Standard & Poor’s GSCI Spot Index of 24 raw materials has rebounded 4.2 per cent since reaching a three-month low on November 5th.
**Money Flows**
!m[Signs of Improving Growth in US and China Push Commodities Prices Higher for Three Straight Weeks](/uploads/story/911/thumbs/pic1_inline.png)Cameron Brandt, the director of research at Massachusetts-based EPFR Global, which tracks money flows, said that in the week ended November 21st, money managers added a net $1.75 billion to commodity funds. According to EPFR Global’s estimates, gold and precious metals funds gained the most, accounting for about $442 million.

**Analysts See Long-Term Bull Trend But Europe Crisis Still Casts a Shadow**
Some analysts see the increased bullish sentiment as a sign of a long-term change in the commodities market. James Paulsen, chief investment strategist at Wells Capital Management, told Bloomberg: “There are a lot of reasons to believe that we are starting to turn the corner. Growth in the US and China gives me confidence to remain invested in commodities.”

Despite some analysts’ upbeat outlook, however, others oppose their positive view of the market by including Europe’s crisis into the picture. According to estimates from investment bank Barclays and oil and gas company BP Plc, about 18 per cent of global copper demand comes from Europe and the region consumes 22 per cent of the world’s oil. Other raw materials are also highly dependent on the continent’s consumption. Accordingly, Europe’s fiscal woes will be a drag on commodities even as conditions improve in the US and China, says John Kinsey of Caldwell Investment Management Ltd. in Toronto. He told Bloomberg: “Europe continues to muddle along, so we’re still not bullish and standing on the sidelines. The road seems to be strewn with minefields, and we try not to step on them.”

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