Hedge funds raised bets on a gold rally by the most in two months as the U.S. economy expanded less than previously estimated, boosting speculation the Federal Reserve will maintain the pace of stimulus.
Speculators raised their net-long position by 35% to 48,096 futures and options by May 28, the biggest gain since March 19, U.S. Commodity Futures Trading Commission data show. Most of the gain came from a drop in short bets, which reached a record a week earlier. Net-bullish wagers across 18 U.S.-traded commodities climbed 13% to a nine-week high of 652,708 contracts, led by gains in corn and natural gas.
The U.S. economy grew at a 2.4% annualized rate in the first quarter, the Commerce Department said May 30, cutting its previous estimate of 2.5%. Fed Chairman Ben S. Bernanke said May 22 that ending the central bank’s stimulus program prematurely could endanger the recovery. Bullion surged 60% since the end of 2008 as central banks printed money on an unprecedented scale to boost growth.
“Gold continues to be useful as an insurance policy in people’s portfolios to guard against uncertainty and possibly some economic dislocation,” said Michael Cuggino, who manages about $14 billion of assets at Permanent Portfolio Family of Funds Inc. in San Francisco. “You have a lot of monetary creation going on, and while inflation is not a current threat, that doesn’t mean it’s not a threat at some point.”
Gold futures rose 0.4% last week, for a second weekly gain. The Standard & Poor’s GSCI Spot Index of 24 commodities fell 1.4%, the most in six weeks. The MSCI All-Country World of equities dropped 1.4%, while the dollar weakened 0.4% against six major trading partners. A Bank of America Corp. index shows Treasuries lost 0.7%.
Bankers advising the Fed said they expect the record stimulus to last as long as three years, according to minutes of a May 17 meeting released last week. The Fed is buying $85 billion of assets a month. Japan is making monthly bond purchases of more than 7 trillion yen ($69.7 billion).
Demand in India, the world’s largest bullion buyer, is poised for a quarterly record as imports reach 300 to 400 metric tons, the World Gold Council said May 29. That’s equal to almost half last year’s total purchases. The U.S. Mint’s sales of American Eagle gold coins reached 70,000 ounces last month, 32% more than a year earlier. Sales doubled in the first five months of 2013.