Hedge funds lowered bullish bets on
gold for a fourth week, the longest streak this year.

The net-long position contracted to the lowest since mid-February as speculators sold bullion on signs of accelerating
U.S. economic growth. The investors more than doubled bets on
lower prices in the past month while reducing wagers on a rally
in six of the past seven weeks.

Prices fell 7.1 percent since reaching a six-month high in
March after tension in Ukraine eased and U.S. equities rallied
to a record. The number of Americans filing for unemployment
insurance payments held last week near the lowest level in
almost seven years and retail sales in March increased more than
economists forecast. Bullion plunged 28 percent in 2013 as some
investors lost their faith in the metal as a store of value.

“It is very difficult for gold to sustain the panic that
makes it a good safe-haven trade,” said Frances Hudson, a
strategist at Standard Life in Edinburgh, which oversees $294
billion of assets. “I see demand for gold remaining non-enthusiastic. Things are looking better in the U.S. and Europe.
It’s not that both these economies are racing ahead, but they
are gradually improving.”

Gold Slide

Futures declined 1.9 percent to $1,293.90 an ounce last
week in New York. The Standard Poor’s GSCI Spot Index of 24
commodities advanced 1.4 percent, while the MSCI All-Country
World Index of equities rose 1.7 percent. The Bloomberg Dollar
Index rose 0.4 percent, and the Bloomberg Treasury Bond Index
retreated 0.5 percent.

The net-long position in gold fell 8.5 percent to 90,137
futures and options in the week to April 15, U.S. Commodity
Futures Trading Commission data show. Short holdings betting on
a drop jumped 15 percent.

The U.S. consumer-price index rose 0.2 percent in March,
topping the 0.1 percent forecast in a Bloomberg survey of
economists, government data showed April 15. Gold tumbled 2
percent that day, the most in 16 weeks. Rising prices give the
Federal Reserve more leeway to decrease monetary stimulus, after
policy makers debated whether to signal a concern with too-low
inflation when they met March 18-19.

The central bank in March reduced the monthly pace of bond
purchases by $10 billion to $55 billion, and signaled additional
cuts in “further measured steps.” Gold jumped 70 percent from
December 2008 to June 2011 as the Fed bought debt and cut
interest rates to a record in a bid to boost the economy.

Inflation Expectations

Bullion climbed 6.8 percent in the first quarter as Russia
annexed Ukraine’s Crimea region and emerging-market currencies
slid. Minutes from the Fed’s March meeting showed that several
officials said projections for an increase in U.S. borrowing
costs might be overstated.

Inflation expectations, measured by the five-year U.S.
Treasury break-even rate, jumped 7.1 percent last week, the most
since July.

“The long-term investors will gradually accumulate gold as
they want to hedge against future inflation,” said Jeffrey
Sherman, who helps manage more than $49 billion of assets for
DoubleLine Capital in Los Angeles. “Gold has found a floor
because of Ukraine and turmoil in emerging countries. While it
may not make money in the short term, it’s a good diversifier.”

Holdings in gold-backed exchange-traded products fell 0.4
percent last week, down for a fifth straight week and reached
the lowest since mid-February, data compiled by Bloomberg show.
Demand in China, the biggest buyer, may be limited this year,
the London-based World Gold Council said April 15. India, the
second-largest consumer, will probably keep restrictions on
imports to control the current account deficit and defend the
rupee, according to Rajesh Khosla at MMTC-PAMP India Pvt., the
nation’s top refiner.

Commodity Wagers

Combined net-wagers across 18 U.S. traded commodities rose
0.2 percent to 1.69 million contracts as of April 15, the CFTC
data show. Investors withdrew $25.79 million from U.S.-based
ETFs tracking commodities in the five days through April 17, led
by an outflow of $475.73 million from precious-metal funds, data
compiled by Bloomberg show.

Commodity prices have again become negatively correlated to
equities, and investors need to take “seriously” the role of
raw materials as a diversifier for portfolios, Citigroup Inc.’s
Ed Morse said in a April 14 report.

Wagers on rising oil prices increased 3.1 percent to
341,477 contracts as of April 15, the CFTC data show. Prices in
New York climbed 0.5 percent last week. U.S. fuel consumption
increased in March to the highest for the month since 2011, the
American Petroleum Institute said April 17.

Copper Holdings

Net-short bets on copper reached 14,892 futures and
options, compared with a bet on price declines of 13,419 a week
earlier, the government said. China’s expansion moderated to the
weakest pace in six quarters and property construction plunged,
the statistics bureau said April 16. The nation is the biggest
metals consumer.

A measure of net-long positions across 11 agricultural
products slid percent 1.6 to 1.06 million contracts. The SP
GSCI Agriculture Index of eight crops capped a second straight
gain last week and is up 18 percent this year.

Bullish bets on coffee gained 2 percent to 38,143
contracts. The wagers have more than doubled since mid-February
as drought hampered crops in Brazil, the biggest grower and
exporter. Prices surged 84 percent this year.

Crop losses may rise as high as 35 percent in southern
Minas Gerais, the leading state producer, according to Christian
Wolthers, the president of Wolthers Douque, an importer in Fort
Lauderdale, Florida.

“We think there is continued demand for commodities like
coffee and cocoa,” said Dan Heckman, a Kansas City-based
national consultant for U.S. Bank Wealth Management, which
oversees about $115 billion. “Besides drought conditions it’s
also being helped by changes in lifestyle and in demographics.
Some of the commodities have strong fundamentals backing them,
but gold is not our favorite place.”

To contact the reporter on this story:
Debarati Roy in New York at
droy5@bloomberg.net

To contact the editors responsible for this story:
Millie Munshi at
mmunshi@bloomberg.net
Patrick McKiernan