Hedge funds are the least bullish on gold in more than five years as speculation about the pace of money printing by central banks whipsawed prices, driving volatility to a 17-month high.

Money managers cut their net-long position by 9 percent to 35,686 futures and options as of May 21, the lowest since July 2007, U.S. Commodity Futures Trading Commission data show. Holdings of short contracts rose 6.7 percent to a record 79,416. Net-bullish wagers across 18 U.S.-traded commodities slid 2.1 percent, as investors became more bearish on coffee and wheat.

Gold’s 60-day historical volatility touched the highest since December 2011 last week and a gauge of price swings for the SPDR Gold Trust, the biggest bullion-backed exchange-traded fund, surged 73 percent this year. Bullion see-sawed as Federal Reserve Chairman Ben S. Bernanke testified before Congress on May 22. Two days later, Bank of Japan Governor Haruhiko Kuroda said he’s done enough to spur growth.

“Gold has so many drivers that it leads to a lot of getting pushed around by one thing or another,” said Dan Denbow, a fund manager at the $1 billion USAA Precious Metals & Minerals Fund in San Antonio. “It makes it impossible to determine a direction.”

May Returns

Futures dropped 5.4 percent in May, poised for a second monthly decline. The Standard & Poor’s GSCI Spot Index of 24 commodities fell 0.1 percent and the MSCI All-Country World of equities also declined 0.1 percent. A Bank of America Corp. Index shows Treasuries lost 1.3 percent.

Increasing price swings have made gold the fourth-most volatile commodity in the GSCI index since March 29, data compiled by Bloomberg show. Silver topped the ranking for raw materials tracked by S&P, followed by natural gas and corn. Investors sold 467 metric tons of gold through exchange-traded products this year, contributing to $45.3 billion of value being erased from global holdings, as some lost faith in the metal as a store of wealth.

Futures traded in New York rose 0.4 percent as of 6:01 a.m. after earlier slipping as much as 0.3 percent.

Gold rose as much as 2.6 percent and dropped as much as 1.8 percent on May 22, the day Bernanke told Congress that raising interest rates or curbing bond buying too soon would endanger the recovery, while also saying the bank may slow its asset purchases if there are signs of sustained economic growth. Kuroda said May 24 the Bank of Japan had announced enough monetary easing and would implement flexible money-market operations.

Temporary Volatility

Volatility in gold prices will be temporary and investors will return to buy the metal as a hedge against inflation, said Nic Johnson, who helps manage $30 billion of commodity assets at Pacific Investment Management Co. in Newport Beach, California.

While price swings increased this quarter, gold was the third-least volatile commodity in the past five years. Cattle and feeder cattle were the most stable and natural gas and crude oil had the most variations. Bullion surged 57 percent since the end of 2008 as central banks printed money on an unprecedented scale to boost growth.

The U.S. Mint sold 209,500 ounces of gold coins last month, the most since December 2009. Central banks may buy as much as 550 tons this year after adding 534.6 tons in 2012, according to the London-based World Gold Council. Twelve analysts surveyed by Bloomberg expect prices to rise this week, with nine bearish and eight neutral, the highest proportion of bulls since April 26.

‘Diversifying Element’

“Gold is a diversifying element to people’s portfolios,” Johnson said. “The liquidation is more institutional in nature, so I think investors very much view gold in the same light as they did before. Volatility will decline back to historic levels.”

Money managers pulled $1.57 billion from gold funds in the week ended May 22, according to Cameron Brandt, the director of research for Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Total outflows from commodity funds were $1.89 billion, according to EPFR.

Investor sentiment is “negative towards gold,” and physical demand has started to slow, Suki Cooper, a New York-based analyst at Barclays Plc, said in a May 24 report. The metal will get “crushed” and trade at $1,100 in a year and below $1,000 in five years as inflation fails to accelerate, Ric Deverell, the head of commodities research at Credit Suisse Group AG, said in London on May 16.

Crude Wagers

Bets on a rally for crude oil climbed for a fourth week to 231,794 futures and options, the highest since March 2012, the CFTC data show. Investors are holding a silver net-short position of 187 contracts from a net-long holding of 1,413 a week earlier. Bullish platinum wagers fell 17 percent to 19,713, the biggest drop since February.

China’s manufacturing is contracting in May for the first time in seven months. A Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics released May 23 showed a preliminary reading of 49.6 for May, below the level of 50 separating growth and contraction and missing analyst estimates.

A measure of net-long positions across 11 agricultural products slumped 15 percent to 228,870 contracts, the first drop in six weeks. Speculators held a coffee net-short position of 11,695 contracts, compared with 172 a week earlier. Wagers on a decline for wheat expanded to 40,447 from 17,225. Bullish corn holdings fell for the first time in four weeks.

Coffee prices tumbled 7 percent last week, the most since July. Inventories monitored by ICE Futures U.S. soared 79 percent in 12 months. Farmers will harvest the biggest grain and soybean crops ever this year as U.S. fields recover from last season’s drought that was the worst since the 1930s, the U.S. Department of Agriculture estimates.

“I would be underweight the commodities at this point until we start seeing a pickup in global growth and a self-sustaining recovery here in the U.S.,” Chad Morganlander, a Florham Park, New Jersey-based fund manager at Stifel Nicolaus & Co., which oversees about $130 billion. “The global economy has been decelerating, and China is struggling.”

(Source: Bloomberg)