Funds bought gold in biggest rally since 2011

Hedge funds raised bets on higher gold prices for a second week as comments from Federal Reserve Chairman Ben S. Bernanke damped expectations for an imminent tapering of stimulus. Futures rose the most since 2011.

Speculators increased their net-long position by 4.1% to 35,691 futures and options, U.S. Commodity Futures Trading Commission data for July 9 show. Net holdings expanded even as speculators increased short bets to a record. Net- bullish wagers across 18 U.S.-traded commodities retreated 3.4% as investors became the most bearish ever on corn. They were more bullish on silver and palladium.

The U.S. needs “highly accommodative monetary policy for the foreseeable future,” Bernanke said July 10. Minutes from the Fed’s June policy meeting showed many officials wanted a stronger labor market before tapering bond purchases. Gold more than doubled from 2008 to a record $1,923.70 an ounce in September 2011 as the Fed cut interest rates to a record low and bought debt. Prices plunged into a bear market in April as some investors lost faith in the metal as a store of value.

“Bernanke’s comments put some positive feeling back into gold and into all commodities,” said Dan Denbow, a fund manager at the $1 billion USAA Precious Metals & Minerals Fund in San Antonio. “The Fed has been working hard to show that taking back a little bit of bond buying isn’t removing accommodation, and Bernanke was very firm on that. There was a bit of a sentiment shift.”

Gold Bulls

Gold futures gained 5.4% to $1,277.60 on the Comex in New York last week, the most since October 2011. Traders are the most bullish in five weeks, with 19 analysts surveyed by Bloomberg expecting prices to rise this week. Nine were bearish and three neutral. Bullion for delivery in August rose 0.5% to settle at $1,283.50 today in New York.

The Standard & Poor’s GSCI Spot Index of 24 commodities% added 1.7% last week, reaching a three-month high on July 11. The MSCI All-Country World index of equities gained 3.4%. The Bloomberg Dollar Index, which tracks the greenback against 10 major trading partners, fell 1.6%, the most in a month. A Bank of America Corp. Index shows Treasuries returned 0.6%.

Last week’s rally means gold has now reversed most of the losses made after Bernanke said June 19 that the central bank may start paring the pace of bond buying this year and end the purchases around the middle of next year if the economy improves. The metal is still down 23% for the year.

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