Hedge funds increased bets on a gold rally by the most in three weeks as central banks signaled no end to economic stimulus, driving prices higher just as analysts and traders turned the most bearish in three years.
The funds and other large speculators raised their net-long position by 19% to 54,762 futures and options as of April 30, U.S. Commodity Futures Trading Commission data show. Holdings of so-called short contracts retreated 9.2%, the most since March 19. Net-bullish wagers across 18 U.S.-traded raw materials jumped 28% to 550,182, the biggest increase in seven weeks, led by gains in soybeans, cocoa and crude oil.
Gold rallied 4.9% in the past two weeks after entering a bear market April 12. The Federal Reserve raised the prospect of increasing its monthly bond buying on May 1 and the European Central Bank cut borrowing costs to a record low the next day. Billionaire investor Warren Buffett said the metal has no appeal even after the slump, and a weekly Bloomberg survey of analysts and traders was the most bearish since February 2010.
“It’s reasonable to say that the currency debasement and easing measures will support gold,” said Alan Gayle, a senior strategist at RidgeWorth Capital Management, which oversees about $48 billion of assets. “The bulls still have to prove a lot. There is lot of skepticism surrounding gold. We have to watch to see if prices have found a near-term bottom.”
Futures climbed 0.7% to $1,464.20 an ounce on the Comex last week. Prices rebounded 11% since reaching a two-year low on April 16. The Standard & Poor’s GSCI Spot Index of 24 commodities rose 1.4% last week, and the MSCI All- Country World of equities gained 1.7%. The dollar slid 0.5% against a basket of six major peers, and a Bank of America Corp. Index shows Treasuries fell 0.4%. Gold was 0.6% higher at $1,472.90 today.
The Fed said at the end of a two-day policy meeting in Washington last week it’s “prepared to increase or reduce the pace of its purchases” of $85 billion in debt a month. Gold surged 66% since the end of 2008 as the Fed was joined by central banks in Europe and Japan in printing unprecedented amounts of money, almost doubling sovereign debt to more than $23 trillion, a Bank of America index shows.