(Bloomberg News) Hedge funds raised their wagers on higher commodity prices by the most since July 2010 after signs of accelerating U.S. growth bolstered optimism that demand for raw materials will strengthen.
Money managers expanded their combined net-long positions across 18 U.S. futures and options by 25 percent to 671,915 contracts in the week ended Jan. 3, Commodity Futures Trading Commission data show. Bullish bets on cotton rose the most since April 2009 and those on coffee doubled. Crude-oil holdings reached a three-week high.
Prices for metals and bulk commodities such as coal rose at least 85 percent of the time since 2004 when global industrial production strengthened, Macquarie Group Ltd. estimates. U.S. unemployment fell to the lowest in almost three years, and it joined China, Australia, Germany, India and the U.K. in reporting manufacturing gains. Almost $253 billion was added to the value of global equities last week on speculation economies will skirt a slump as Europe's debt crisis deepens.
"You've been seeing a risk-on trade across the board, not just in commodities," said John Bailey, the founder and chief executive officer of Stamford, Connecticut-based Spruce Private Investors LLC, which advises investors holding about $3 billion of assets. "Between a calming in Europe and better-than- expected numbers in the U.S., including employment and housing, that has led to a risk-on attitude among managers."
The Standard & Poor's GSCI Spot Index of 24 raw materials rose 2.6 percent last week and reached a seven-week high on Jan. 5. The MSCI All-Country World Index gained 0.8 percent, touching a one-month high on Jan. 4. The U.S. Dollar Index, a measure against six trading partners, added 1.3 percent, and the yield on 10-year Treasuries advanced 0.8 percentage point, Bloomberg Bond Trader prices show.
Thirteen of the 24 raw materials tracked by the GSCI gauge advanced, led by a 5.3 percent gain in Brent crude, a 4.6 percent increase in heating oil, and a 4.7 percent jump in gas oil. Cotton increased 4.4 percent, the third consecutive advance, and gold rallied 3.2 percent, the biggest gain since the week ended Dec. 2.
The U.S. expanded at a rate of 1.8 percent in 2011 and will probably grow 2.1 percent in 2012, according to the median of 70 economist estimates compiled by Bloomberg. Employers added more workers to payrolls than projected in December, Labor Department figures showed on Jan. 6. Manufacturing expanded in December at the fastest pace in six months, the Institute for Supply Management said on Jan. 3.
'Economy Is Back'
"The economy is back," Chris Rupkey, the chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd., wrote in a report Jan. 6. "Despite some evidence of slowing in places like Canada, Brazil, China, and of course Europe, the prospect for continued growth in the U.S. is a bright one."
The S&P GSCI Spot index rallied 16 percent since reaching a 10-month low in October on signs of increasing optimism for economic growth. President Barack Obama said Jan. 6 that the U.S., the world's biggest economy, is "starting to rebound," after the Labor Department reported that the unemployment rate fell to 8.5 percent, the lowest since February 2009. The gauge was little changed at 662.68 today.