Is commodity market consolidation offering a strategic accumulation opportunity?
"At the end of 2008, the global economy was tipping into recession and demand for raw materials fell through the floor.
Today, in spite of economic worries in almost every part of the world, consumption of most commodities continues to grow -- in some cases, strongly.
And yet investors have turned tail. Their positioning in US commodity futures, as reported by the Commodity Futures Trading Commission, is the least bullish since July last year.
From a peak in early April, bets on higher prices have fallen 37 per cent on a net basis.
Nor is the shake-out restricted to futures markets: natural resources executives say equity investors have reduced their exposure to the sector as a whole; they have also been trimming bets on the Australian dollar, the strength of which is closely linked to commodity prices.
Investors are not, for the most part, going short and betting on falling commodity prices. They are just getting out.
The number of contracts outstanding, or 'open interest,' in US commodity futures contracts has also fallen to its lowest since last summer, according to the CFTC.
With worries about the global economy denting confidence in risky assets, the one commodity that might be expected to shine is gold, but it has not been immune to the commodities sell-off.
From a nominal all-time peak of $1,575.79 a troy ounce in May, it has fallen 6.2 per cent to a low of $1,478 on Friday, and CFTC data show investors sharply cutting their bullish bets. Analysts say gold investors have become weary of economic turmoil after three years of surprises. But a surge in demand from India and China is supporting prices."