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Hedge-fund managers are making the biggest ever bet against gold as billionaire George Sorossold holdings last quarter and Goldman Sachs Group Inc. predicted more declines after the longest slump in four years.
The funds and other large speculators held 74,432 so-called short contracts on May 14, U.S. Commodity Futures Trading Commission data show. That’s the highest since the data begins in June 2006 and compares with 67,374 a week earlier. The net-long position dropped 20 percent to 39,216 futures and options, the lowest since July 2007. Net-bullish wagers across 18 U.S.- traded raw materials rose 1.1 percent to 588,482, led by gains in hogs, corn and cotton.
Gold prices that surged sixfold in the past 12 years fell 19 percent in 2013, including a seven-session slump through May 17 that was the longest since March 2009. Soros joined funds managed by Northern Trust Corp. and BlackRock Inc. in cutting holdings of exchange-traded products in the first quarter. ETP assets are now at the lowest since July 2011 after some investors lost faith in gold as a store of value amid improving economic growth, low inflation and a rally in equities.
“Gold has faced disappointment after disappointment,” saidJohn Stephenson, a senior vice president and fund managerwho helps oversee about C$2.7 billion ($2.65 billion) at First Asset Investment Management Inc. in Toronto. “It’s had a 12-year run, but the whole fear-mongering that the world is going to end is just not working. So, I think that any last vestige of an investment thesis for gold has been stripped.”
Prices Slump
Gold futures fell 5 percent to $1,364.70 an ounce on Comex inNew York last week. Prices slumped as Federal Reserve regional bank presidents including Richard Fisher of Dallas andCharles Plosser of Philadelphia called for a reduction of U.S. monetary stimulus. Fisher and Plosser don’t hold a policy vote this year. Seventeen analysts surveyed by Bloomberg expect bullion to fall this week, with eight bullish and three neutral.
U.S. Bonds Cheapest Since ’90 Versus Bunds Counter Buffett Pity
The longest decline in Treasuries this year has left U.S. government debt the cheapest since March 2011 when measured by real yields and the best relative value compared with German bunds in more than two decades.
After inflation, 10-year U.S. notes yielded 0.91 percent last week, or 1.77 percentage points more than real yields on U.K. gilts, the widest spread in 25 months. Versus Germany, the securities are the least costly in 23 years when adjusted for the recent record-low interest rates around the world that distorted the normal relationship, according to FTN Financial.
Federal Reserve Chairman Ben S. Bernanke is counting on Treasuries to contain borrowing costs as the central bank buys $85 billion a month in securities to sustain the economic recovery that lifted U.S. consumer confidence to the highest in almost six years. The better relative yield for U.S. bonds may help bolster demand even as Warren Buffett said this month that he pitied fixed-income investors because of about record-low interest rates.
“The Treasury market is cheaper than almost any other comparable market on a relative value basis,” Jim Vogel, an interest-rate strategist at FTN, said by phone May 15. “There is the thought out there that Treasuries are expensive when in reality they offer the most value given the improving economy and the relative real yield they offer compared to others.”
Rally Gives Investors a Great Year, in Just 6 Months
Happy demi-anniversary, stock market rally. Will the honeymoon ever end?
Six months ago, this "relentless rally" took off and it has so far delivered stock investors the kind of bounty that would make for a very good year in any age.
The Standard & Poor’s 500 index bottomed at 1,353 on Nov. 15, as a sharp post-election selloff and policy panic were culminating, giving way to what has been a tireless climb that's confounded the cautious. The S&P 500 is up more than 22% since then, and up 13% so far in 2013, with healthcare, media and financial stocks leading the way — and without so much as a 4% pullback.
It’s fair to say that not many saw it playing out quite this way. Two days after the market low was set, the Wall Street Journal published Learning To Love Volatility, an essay by Nassim Nicholas Taleb, author of “The Black Swan,” the best seller that detailed the world’s knack for delivering unforeseen shocks.
Fair advice — at the time
It seemed like fair advice at the time, with investors on alert for the next economic or policy shock after five years on the crisis-and-rescue treadmill. A contentious election surprised and displeased plenty of Americans, especially wealthy stock owners, and began the ticking of the Washington-conjured “fiscal cliff” tax-expiration letter bomb. For good measure, the world economy again seemed to be slowing dramatically.
The markets were in no mood to love volatility but rather to pay up for shelter from it. The 10-year Treasury yield bottomed at the same time as the stock indexes, at a low of 1.59% not seen since. Gold, the default asset of the fearful, sat above $1,700 per ounce, not far from its all-time 2011 high.
Wall Street investment strategists were hunkered down as they rarely have been over the years, recommending clients keep less than 50% of their accounts in stocks, according to the Sell-Side Indicator – which as a contrary-logic tool has typically foretold big market gains to come.
All this clenching-up of anxiety about the uncertain future yielded to a quite-unexpected outbreak of calm. U.S. growth held up better than in other mature economies, housing activity and car sales revived, and fiscal deadlock and limp inflation data spread assurance that the Federal Reserve would resolutely continue shoveling money into the bond markets. Also, companies have continued using copious cash to buy up their own shares and investors got just enough assurance that disaster risks were contained to add risk to their own portfolios.
