Hedge Funds Rally on Commodities, Raw Materials

Hedge funds increased wagers on rising commodity prices to the highest level in two months after the Federal Reserve promised to keep interest rates low for at leads three more years, reports Bloomberg. The rally on raw materials also accelerated.

The jump came after federal policy makers said on January 25 that they would keep their target interest rate for overnight loans between banks near zero for the next three years at least.

The Fed also didn’t rule out buying more bonds. “Money managers raised combined bullish positions across 18 U.S. futures and options by 13 percent to 742,902 contracts in the week ended Jan. 24,”  reports Bloomberg. “The so-called net-long position in copper jumped 53 percent to the highest since August and in silver by 22 percent to the most since September.” Hedge funds also upped their bets on sugar, soybeans, cotton, gold, gasoline and crude oil. The news is so welcome because every time the Fed pulls a round a quantitative easing, commodities and raw materials go up.

Osvaldo Canavosio, head of emerging markets and commodities research at Man Investments’ fund of funds division. explains the phenomenon, saying, “Every time the Fed sends the signal to the markets that there’s going to be a continued easy monetary stance, through time you tend to see more interest in real asset. Pretty much everything across the board denominated in dollars is going up in price because the dollar is coming down.”

London-based Hermes Investment Management predicted commodities outlook would be good as far back as October. Popular fund manager T. Boone Pickens keeps roughly 10% of his BP Capital Portfolio invested in commodities.