The financial crisis that pushed oil prices sharply lower recently is costing investors a lot of cash, with both the Dow Jones-American International Group Commodity Index and the Standard & Poor’s Goldman Sachs Commodity Index each reporting losses as much as a third of their value year to date.
The Dow Jones said last week that its commodity index group was down 24.78 percent for the month of October and 31.77 percent since January, which would mean a loss of at least $16.5 billion so far this year. The commodity index is tracking $35 billon during the fourth quarter.
Analysts said the losses are due to redemption by major hedge fund that pumped billions of cash into commodity indices over the past couple of years.
“The bulk of the asset decline can be attributed to the index performance in the third quarter,” Dow Jones spokeswoman Naomi Kim told DTN.
In its monthly performance report, Dow Jones said all of its Single Commodity Indexes were in negative territory for the month of October, with Lean Hogs, Live Cattle, and Coffee posting the narrowest losses of 8.88 percent, 12.78 percent and 16.71 percent, respectively. The worst performances were posted by Copper, Unleaded Gas and Nickel, which fell 41.42 percent, 41.01 percent and 37.30 percent respectively.
The Dow Jones-AIG index of 19 commodities is weighted 33 percent to energy, with agricultural and metal products sharing the rest.
Major investors have fled commodities on concern that a looming global recession may hurt demand for energy and other commodities. Major hedge funds have lost a lot of money in the process.
BP Capital, an energy hedge fund owned by Texas oilman T. Boone Pickens, has lost about 60 percent of its value this year, or $1.5 billion, prompting investors in the fund to ask for their money back, the Wall Street Journal reported last week.
“Some hedge funds were holding on to their assets in the index funds and they lost as the market dropped,” said Peter Beutel, an analyst at the risk management firm Cameron Hanover in Stamford, Connecticut.
Assets tracking the Standard & Poor's GSCI Index of 24 commodities declined at least 30.9 percent so far this year, said a company source.
S&P manager for indices Dave Guarino told DTN that about $85 billion was tracked the GSCI index at the end of 2007, suggesting a loss of $26.4 billion so far this year.
S&P’s GSCI index, which was acquired last year from Wall Street bank Goldman Sachs, is 72 percent weighted to energy.
“But a huge number of contracts were redeemed,” said Beutel, adding, this “liquidation helped push down the market [in recent months].”
Bundles of cash that flowed into commodities earlier this year have stopped as the global growth outlook got bleaker. Investors have pulled at least $43 billion this year, hundreds of millions during the week-ended Oct. 24 alone, said another analyst.
The Dow Jones-AIG Commodity Index is headed for its worst year since 1992. The decline is part of the deleveraging that's going on and the general avoidance of commodities.
Speculative net-long positions for 19 commodities outnumbered short positions by 155,947 contracts in the week-ended Oct. 24, down 88 percent from this year's high of 1.33 million in the week-ended Feb. 26.
