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July 22 (Bloomberg) -- Hedge funds raised bets on a gold rally before prices capped the biggest two-week gain in 20 months as Federal Reserve Chairman Ben S. Bernanke damped speculation that a cut in stimulus is imminent.
Speculators increased their net-long position by 56 percent to 55,535 futures and options by July 16, the highest since June 4, U.S. Commodity Futures Trading Commission data show. Short contracts fell the most since November after reaching a record the previous week. Net-bullish wagers across 18 U.S.-traded commodities jumped 28 percent, the biggest gain since March.
Gold surged 6.7 percent in two weeks, the most since November 2011, as Bernanke signaled that decreases to bond purchases aren’t imminent. It’s "way too early to make any judgment" as to whether the Fed will start winding down its stimulus program in September, he said while testifying before the Senate July 18. Bullion fell into a bear market in April as some investors lost faith in the metal as store of value.
"We are seeing some support for gold as Bernanke’s statements tell us that the Fed wants to see a visible improvement in economic conditions before they begin tapering," said Michael Cuggino, who manages $12 billion of assets at Permanent Portfolio Family of Funds Inc. in San Francisco. "The longer-term reasons for owning gold, like capital preservation, remain as easy money will continue to flow into the system."
Futures gained 1.3 percent to $1,294 an ounce on the Comex last week, and extended that rally today, rising as much as 3.2 percent to $1,335.70, the highest since June 20. Traders are bullish for a fourth week, the longest run since the bear market began in April, with 15 analysts surveyed by Bloomberg expecting prices to rise this week. Nine were bearish and five neutral.
The Standard & Poor’s GSCI Spot Index of 24 commodities percent added 0.9 percent last week, the fourth gain and the longest rally since February. The MSCI All-Country World index of equities rose 1 percent as the S&P 500 Index reached a record July 18. The Bloomberg Dollar Index, which tracks the currency against 10 major trading partners, fell 0.5 percent. A Bank of America Corp. Index shows Treasuries returned 0.6 percent.
Bernanke’s remarks come after he 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 Fed purchases $85 billion of debt each month. Bullion more than doubled from 2008 to a record $1,923.70 in September 2011 as the central bank bought more than $2 trillion of debt.