News

Investors returned to gold just intime for the longest price rally in a month amid mountingtension over Ukraine.

Money managers increased their net-long position in gold inthe week ended April 22, snapping a four-week retreat that wasthe longest this year. The metal climbed in the next three days,sending futures to the best start to a year since 2006.

Bullion reached a six-month high after Russia annexedCrimea last month, and then fell almost 9 percent on signs thatpeace would return. Hostilities last week fueled demand forhaven assets as the 28-nation European Union prepared to imposemore sanctions against Russians in positions of power.

“You’re going to get a lot of backwards and forwards ingold,” Adrian Day, president of Adrian Day Asset Management inAnnapolis, Maryland, said April 24. “The gold situation hasbeen compounded by Ukraine. I’m very bullish on gold, but it’sgoing to be a trade for the patient.”

Futures rose 0.5 percent to $1,300.80 an ounce last week onthe Comex in New York. The Standard & Poor’s GSCI Spot Index of24 commodities fell 0.5 percent, while the MSCI All-CountryWorld Index of equities dropped 0.2 percent and the BloombergTreasury Bond Index gained 0.3 percent. The Bloomberg DollarSpot Index was little changed. Bullion traded at $1,304.30 by11:25 a.m. in Singapore today.

Net Longs

The net-long position in gold rose 0.5 percent to 90,572futures and options in the week ended April 22, the firstincrease since March 18, according to data from the U.S.Commodity Futures Trading Commission. Both short and longholdings fell, signaling the change in net wagers was spurred byinvestors unwinding bets on a decline.

Gold climbed 8.5 percent in 2014, rebounding from lastyear’s 28 percent slump, the biggest since 1981. Unusually coldwinter weather stymied U.S. economic growth, while tensionsbetween Russia and Ukraine flared. Russian President Vladimir Putin last week warned Ukraine against continuing an anti-separatist offensive that killed five rebels.

Hedge funds have had a difficult time predicting gold’snext move, misjudging prices in two of the past four weeks. Themoney managers are in good company. Barrick Gold Corp. Chairman Peter Munk said last week he finds it impossible to accuratelypredict the value of the precious metal, echoing comments madeby Federal Reserve Chairman Janet Yellen and her predecessor Ben S. Bernanke.

Goldman View

Barrick, the largest gold producer, wrote down $11.5billion in value last year as bullion plunged into a bear market. Futures remain 32 percent below the $1,923.70 recordreached in September 2011.

Goldman Sachs Group Inc. doesn’t expect the rally in goldto last. The economic slowdown earlier this year was“transient,” and a rebound in the pace of expansion will driveprices lower, the bank said in an April 13 report, reiteratingthat the metal will touch $1,050 in 12 months. Barclays Plc andABN Amro are also forecasting that prices will weaken, the bankssaid in reports this month.

American consumer confidence climbed to a nine-month highin April, and U.S. orders for durable goods in March rose themost since November, reports showed last week. Improving growthgives the Federal Reserve more leeway to decrease monetarystimulus. The central bank in March reduced the monthly pace ofbond purchases by $10 billion to $55 billion, and signaledadditional cuts in “further measured steps.”

Fed Taper

“We’re still a little toward the bearish side because wethink the Fed continues to taper,” said Rob Haworth, a Seattle-based senior investment strategist at U.S. Bank WealthManagement, which oversees $115 billion. “That said, comparedto last year, I have to temper my bearishness because we’ve seengeopolitical risk rise,” he said April 24.

Gold jumped 70 percent from December 2008 to June 2011 asthe Fed bought debt and cut interest rates to a record in a bidto boost the economy.

Combined net-wagers across 18 U.S. traded commodities slid1.2 percent to 1.67 million contracts as of April 22, the CFTCdata show. Investors withdrew $33.8 million from U.S.-based ETFstracking commodities in the five days through April 24, led byan outflow of $200 million in precious-metal funds, datacompiled by Bloomberg show.

Crude Bets

Bullish bets on crude oil dropped 2.3 percent in the weekthrough April 22, the first decline this month, CFTC data show.West Texas Intermediate fell 3.5 percent in New York last week,the most since mid-March. U.S. inventories are at the highestsince government weekly data started in 1982.

Speculators trimmed net-short wagers in copper to 3,527contracts, the fewest since March 4. Copper futures gained 1.9percent last week. Stockpiles monitored by exchanges in Shanghai, London and New York fell to the lowest since 2008.

A measure of speculative positions across 11 agriculturalcommodities dropped for a third straight week, falling 3.6percent to 1.02 million contracts. The S&P GSCI AgricultureIndex of eight crops rose 1.3 percent, and is up 19 percent in2014, the best start to a year since the data begins in 1970.

Investors increased their wagers on a coffee rally by 1.9percent to 38,863 contracts, the CFTC said. Coffee futuressurged to a 26-month high on April 23 as the worst Braziliandrought in decades ravaged the crop and Volcafe Ltd. predictedglobal harvests to fall short of demand by 11 million bags.

Wheat net-longs dropped 29 percent to 27,090 contracts.Prices climbed 1.3 percent last week on concern that tensions inthe Black Sea region could disrupt supplies. Russia is thefifth-biggest exporter and Ukraine is the sixth.

“If Russia and Ukraine got everything patched up, thatkind of risk premium would fade,” Kelly Wiesbrock, a portfoliomanager at Harvest Capital Strategies in San Francisco, whichoversees $1.8 billion, said April 24. “It doesn’t look likethat’s going to happen any time soon. The biggest thing foragriculture is the supply component.”