NEW YORK | Fri May 18, 2012 8:18pm EDT
(Reuters) – Hedge funds and other money managers liquidated more than $2 billion in gold futures over a week, trade data on Friday showed, before a forceful rebound in the precious metal potentially tripped up some of them.
The majority of fund managers also appear to have bet wrongly against wheat, as suggested by the data from the Commodity Futures Trading Commission which showed a net “short” or bearish position against the grain which finished this week with its highest weekly gain in 16 years.
“It’s still early to say if this rebound in wheat and gold will hold. But it’s safe to assume that at least some hedge funds got burnt this week trying to ride the two markets all the way down,” said Adam Sarhan at Sarhan Capital in New York.
Fund managers had been dumping gold since the start of May after election woes in Greece and new fears over Spain’s finances put the euro zone crisis at the forefront of investor concerns. Traders initially selling the precious metal to cover losses in stocks and other markets were later joined by those betting that gold itself was overpriced and due for correction.
Trade data released by the CFTC showed the net “long” managed money in U.S. gold — which reflects bullish bets on the shiny metal — fell by $2.2 billion to $12.2 billion for the week ended May 15.
The drop came after hedge funds and money managers reduced to 78,619 the number of net gold contracts they held on the COMEX division of the New York Mercantile Exchange, versus the 92,498 contracts at the end of the week to May 8.
It was the smallest net long position for funds in gold since December 2008, when speculators were bailing out of all financial markets at the height of the global economic crisis.
COMEX gold’s benchmark contract, June, fell around $82 an ounce, or 5 percent, between May 8 and 15, settling at a four-month low of around $1,557.
After falling for another session, it suddenly snapped back the last two days of this week, surging to nearly $1,598 before closing above $1,591 on Friday.
It was the sharpest two-day rally for gold since October, a rebound believed to have caught a number of funds that had been on the short end of the market.
“It’s all a question of when you exited your shorts in gold this week, or whether you did at all. If you had gone short since the May 1 high of $1,672, yes, you’d have made quite a lot of money. Those who went short at $1,550 and stayed short, would have certainly lost,” Sarhan said.
In the case of wheat, the managed money fell by $117 million to a net short of around $1.5 billion for the week to May 15.
U.S. wheat futures added about 16 percent to prices this week — the largest weekly gain since 1996 — as hot and dry weather kept fears simmering about crop losses in the U.S. Plains and inRussia.
CFTC data also showed the overall managed money in U.S. commodities falling for a second week in a row to its lowest level in nearly 5 months.
Net longs held by hedge funds and other money managers across 24 U.S. futures markets fell by nearly $8 billion, to settle at around $62 billion for the week to May 15. The last time net longs for managed money were at those levels was in the week to December 27.
(Editing by Bob Burgdorfer)