Hedge funds turn bullish, rise net positions

Hedge funds increased bullish bets on commodities by the most since August, as evidence that China is accelerating outweighed concern that US lawmakers have yet to resolve an impasse over automatic spending cuts and tax rises.

Speculators and money manager increased net-long positions across 18 US futures and options by 9.8 per cent to 929,588 contracts in the week ended November 27, the biggest gain since August 21, US Commodity Futures Trading Commission data show. Gold holdings reached a six-week high, and wagers on a wheat rally jumped the most since June. Cattle bets more than doubled. The Standard & Poor's GSCI Spot Index of 24 raw materials rose 1.9 per cent in November, the first monthly gain since August.

The world economy is in its best shape in 18 months because of the acceleration in China, the biggest consumer of everything from cotton to copper to coal, according to the Bloomberg Global Poll of 862 investors last week. The US probably will avoid the so-called fiscal cliff that the Congressional Budget Office has warned risks sending the country back into recession, even as Europe remains mired in a debt crisis, the poll showed.

"I wouldn't say that it was a green light all ahead for commodities, but the market is turning slowly based primarily on improved real numbers out of China that outweigh slowdowns in Europe and the US," said Adrian Day, who manages about $170 million of assets, as president of Adrian Day Asset Management in Annapolis, Maryland. China is "overwhelmingly the most important factor," he said.