Hedge fund gold position at six-month high after rally

Hedge funds and other speculators raised bets on higher gold prices to the most in six months as signs of slowing U.S. growth drove bullion above $1,400 an ounce for the first time since June.

The net-long position increased 29% to 73,216 futures and options by Aug. 20, U.S. Commodity Futures Trading Commission data show. Short contracts fell for a second week and to the lowest since Feb. 12. Net-bullish holdings across 18 U.S.-traded commodities jumped 34%, the most since July 2010, as wagers on copper and soybeans more than doubled.

Gold, down 27% from its record high, has rallied 18% from a 34-month low in June. Asian demand for jewelry surged as prices tumbled into a bear market. Sales of new homes in the U.S. declined more than 13% in July and consumer confidence fell in the week ended Aug. 18, increasing speculation the Federal Reserve will look for more signs of growth before easing stimulus that debases the dollar.

“Physical demand is very strong, and that is lending support to prices, and we think it’s time to increase our holdings,” said Michael Mullaney, the Boston-based chief investment officer for Fiduciary Trust Co., which manages about $10 billion of assets. “The economy is improving, but there are some misses, which intensify the debate on tapering and increases demand for gold as a safe-haven investment.”

Gold Rally

Futures rose 0.1% to $1,397.50 at 11:20 a.m. on the Comex in New York, after gaining 1.8% last week to $1,395.80 last week. Spot prices topped $1,400 on Aug. 23. The Standard & Poor’s GSCI Spot Index of 24 commodities slid 0.1% last week, while the MSCI All-Country World Index of equities dropped 0.3%. The Bloomberg Dollar Index, a gauge against 10 major trading partners, rose 0.4%.

Policy makers are weighing when to begin curbing $85 billion of monthly bond purchases that they pledged to maintain until the job market improves. Gold rose 70% from December 2008 to June 2011 as the U.S. central bank pumped more than $2 trillion into the financial system by purchasing debt, increasing investors’ concern about currency debasement and accelerating inflation.

Fed Bank of St. Louis President James Bullard, who has supported record Fed stimulus, said on Aug. 23 the central bank should pledge not to raise record-low interest rates as long as inflation is below 1.5%. The metal may rally to $1,482 as soon as October if Fed tapering is delayed to December, Barclays Plc said Aug. 23.

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