Bullish commodity bets fall to lowest in six months, says government data

TradingPub Admin | December 24, 2012

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Futures contracts wagering that commodities will rise in value have fallen to their lowest in close to six months, according to data provided by government agency the U.S. Commodity Futures Trading Commission.

Bullish Wagers Fall 
Government data provided by the financial regulator reveals that during the week ending on December 18, the net-long positions held by hedge funds and other money managers across 18 U.S. futures and options fell 5.6 percent to reach 758,256 contracts, according to Bloomberg.

This figure represents a sharp decline in bullish contracts, as additional data provided by the government agency indicates this was the lowest number of these wagers since June 16, the news source reports. Gold holdings declined to their least since August, and silver holdings fell 14 percent. For the first time in six months, market participants started wagering that wheat would drop in price.

Budget Concerns 
The media outlet reports that one major contributor to the recent decline in bets that commodity prices will increase is the budgetary uncertainty that exists in Washington. Lawmakers will not vote again on potential methods to resolve budget disputes until after Christmas day.

Thus far in 2012, these government officials have not been able to determine what fiscal policy will look like next year. They have been negotiating how new tax revenue will be created and also what cuts will be made to entitlement programs.

If these lawmakers are unable to successfully resolve their disagreements, it will result in more than $600 billion worth of tax increases and spending reductions coming to fruition. The impact of such headwinds are widely expected to be highly detrimental, with the nonpartisan Congressional Budget Office predicting in a recent report that going over the fiscal cliff would push the U.S. economy into recession in 2013.

"What you have is a re-pricing of risk on concerns of no resolution to the fiscal cliff," Jeffrey Sherman, who contributes to the management of more than $50 billion of assets for Los Angeles, California-based DoubleLine Capital, told the news source. "By going over the cliff, for the consumer, you have less money in the system and therefore less economic growth."

Consumer Confidence
Another area that could affect the market for commodities is the attitude of consumers, as they purchase many of the end products that require these raw materials. Data provided by Thomson Reuters and the University of Michigan reveals that consumer sentiment fell in December, registering its lowest index since July.

The final index of consumer sentiment had a value of 72.9 for the month, which was below the median forecast of 75 provided by economists participating in a Bloomberg survey.
These challenges may be temporary, as James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, has predicted that the U.S. economy will likely hold up well and contribute to an improving market for commodities, according to the news source.

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