About $9.61 billion went into commodity funds in the first quarter, more than triple the $2.77 billion a year earlier, EPFR Global, a Cambridge, Mass.-based research firm, said in a report in April. Energy funds attracted $10.9 billion, compared with a year-earlier outflow of $367 million.
A rebound in the dollar also dimmed the appeal for commodities that are priced in the U.S. currency. The Dollar Index, a measure against six counterparts, rose 2.6% last week, the most since August. The index has a negative correlation of 0.89 to the S&P GSCI Index. A figure of 1 would mean they move in lockstep. The currency gauge may drop to the lowest since July 2008 by the end of the year, estimates compiled by Bloomberg show.
Five-Day Slump
"This is probably the beginning of a bear phase, even if it's temporary, where the dollar and bonds will be more popular than commodities," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. "It's fitting hand in glove with the U.S. slowdown story."
The S&P GSCI's five-day slump, the longest since August, began on May 2 and accelerated on May 5 by plunging 6.5%, the most since January 2009.
Silver led the rout after CME Group Inc., the owner of the Comex exchange, increased the cost of making new speculative positions by 84% in two weeks. Prices that advanced as much as 61% to $49.845 an ounce this year tumbled 27% last week to $35.287 on May 6. The metal may drop as low as $30 toward the end of the year before rebounding as gold rallies, said Dan Smith, the London-based analyst at Standard Chartered Plc, which predicted a decline in prices last month.
Gold, Soros
Gold also fell, declining 4.2% to $1,491.60 an ounce last week, after the Wall Street Journal reported May 4 that Soros Fund Management LLC, the hedge fund chaired by billionaire investor George Soros, sold some of its precious-metal holdings.
Bullion will advance to a record $1,650 by year-end, partly fueled by central banks buying to diversify their reserves, said Andrew Kaleel, chief executive officer of Sydney-based H3 Global Advisors Pty Ltd., which has a commodity hedge fund managing about A$600 million ($642 million).
Mexico, Russia and Thailand bought about a combined $6 billion of bullion in February and March, International Monetary Fund data show. Since the end of 2009, countries including India, Sri Lanka, Mauritius and Bangladesh have bought metal. Central banks are expanding their gold reserves for the first time in a generation as bullion rises for an 11th consecutive year, the longest winning streak since at least 1920.