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Gold Hits Three-Month High as Fund Buying, ETFs Buoy Sentiment

Prices have rebounded from lows in March as the dollar retreated and the Federal Reserve signaled it will keep interest rates low, even with signs of rising inflation.

(Bloomberg) -- Gold touched a more than three-month high, buoyed by signs that money managers and exchange-traded fund investors are turning more positive on the precious metal.

Hedge fund managers increased their long-only position in U.S. futures and options by 12% from a week earlier, the most since June, according to government figures on Friday. Meanwhile, data compiled by Bloomberg show exchange-traded fund investors have bought bullion for the past six sessions, following months of sales.

Prices have rebounded from lows in March as the dollar retreated and the Federal Reserve signaled it will keep interest rates low, even with signs of rising inflation. Expectations for further increases in consumer prices could start to boost demand for gold as a hedge, analysts say.

“Following months of outflows, returning speculative interest could ultimately spark a breakout” in gold, TD Securities analysts led by Bart Melek said in a note.

The TD analysts expect the period of high inflation, partly reflected in last week’s consumer- and producer-prices reports, to prove transitory, “but there remains a substantial amount of uncertainty surrounding the path for inflation. Nonetheless, considering that gold is underperforming against periods of high inflation, we see substantial upside risks for the yellow metal,” they said.

Spot gold added 0.9% to $1,859.70 an ounce by 10:24 a.m. in New York, after reaching $1,860.88, the highest since Feb. 2. Silver, palladium and platinum also advanced. The Bloomberg Dollar Spot Index was steady.

Investor interest in gold also got a lift after the metal topped the psychologically important $1,800 mark at the end earlier this month, according to Commerzbank AG analyst Carsten Fritsch.

Gold’s gains took it past its 200-day moving average. Prices could climb to $1,878 if it surpasses resistance at $1,858, Ole Hansen, head of commodity strategy at Saxo Bank A/S, said earlier.

--With assistance from Ranjeetha Pakiam and Eddie Spence.

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