Funds Boost Bullish Commodity Bets Amid Improving Global Growth Prospects

Source: Bloomberg, Yi Tuan (6/6/11)

"The global recovery is 'gaining strength'. . ."

Bloomberg, Yi Tuan

Funds boosted bets on rising commodity prices to the highest in four weeks, led by copper, amid signs that the global economic recovery will remain resilient and boost demand for raw materials.

Speculators raised their net-long positions in 18 commodities by 7.3% to 1.26M futures and options contracts in the week ended May 31. That's the highest since May 3. Copper holdings more than doubled. A measure of bullish agriculture bets also climbed as adverse global weather curbed crop production.

The Standard & Poor's GSCI Spot Index rose for a fourth straight week as Chinese metal inventories plunged and droughts lingered in the Asian country and Europe, trimming prospects for wheat and cotton crops. The global recovery "is gaining strength," the Group of Eight leaders said on May 27, after a summit in France. In the U.S., consumer sentiment rose to a three-month high in May.

"We are seeing a reasonable rate of growth in worldwide economic activity," said Michael Cuggino, who helps manage $12B at Permanent Portfolio Funds in San Francisco. "The supply-demand associated with that growth, combined with a weaker dollar, probably explains the move into commodities."

Copper prices have jumped 40% in the past year, while wheat has surged 75% and corn has more than doubled amid increasing demand from China and other emerging economies. Raw materials have also gained as investors boosted holdings as an alternative to the dollar, which has slumped more than 6% this year against a six-currency basket.

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