Indiana Grain Company, LLC

Posted: 12/27/11

By: tomgrisafi

The impressive market rally seen in recent days among commodities was almost totally missed by many of the biggest hedge funds on Wall Street.

As Bloomberg reported Monday, hedge funds reduced bets on higher commodity prices to the lowest level since 2009 just as raw materials headed for their biggest weekly rally in two months.

Money managers cut their combined net-long position across 18 U.S. futures and options by 15 percent to 454,512 contracts in the week ended Dec. 20, the lowest since March 2009, data from the Commodity Futures Trading Commission show. The Standard & Poor’s GSCI gauge of 24 commodities climbed 4.5 percent last week, erasing this year’s declines and pushing the index toward its third consecutive annual advance.

“Commodities are in the process of bottoming,” said James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees about $340 billion of assets. “You’re going to find out that the U.S. economy is going to continue to grow much faster than people thought. You’re going to see people coming back to commodities.”

Last week’s gain in the S&P GSCI was the biggest since Oct. 14 and left the gauge up 2.2 percent in 2011.

Twenty of the 24 raw materials tracked by the S&P GSCI rose last week. Gasoline surged 8 percent to $2.6872 a gallon. Wheat capped six consecutive daily advances, the longest winning streak since January. Oil added 6.6 percent, the biggest weekly gain since October.

Commodities will return 15 percent in the next 12 months, led by industrial metals and energy, because the global economy is likely to avoid another recession, Goldman said in a report Dec. 1.

Source: Bloomberg