Gold rallies most since January as inflation fears resurface

(Bloomberg) — When the dollar loses, gold wins. At least that's what hedge funds are betting.

Money managers who hoarded bullion at the fastest pace in more than a month were rewarded with the biggest rally in prices since January. Weaker U.S. consumer confidence and softening factory production drove the dollar lower for a fifth week, the longest stretch since 2013.

Gold, first struck into coins more than two millennia ago, is still sought by some investors as an alternative currency or hedge against inflation. Signs of cooling expansion mean the Federal Reserve could wait longer before raising interest rates, increasing the chances that inflation will accelerate. Record-low rates increase bullion's appeal because the metal doesn't pay interest, unlike competing assets such as new bonds.

"Right now, it would be a pretty interesting entry point, if you are a long-term investor," Lara Magnusen, a La Jolla, California-based portfolio manager at Altegris Investments Inc., which oversees $2.65 billion, said by phone May 14. "We are shifting out of the fear of deflation, and moving into more of a reflationary world."

Speculators' net-long position in gold jumped 14 percent to 36,150 futures and options as of May 12, U.S. Commodity Futures Trading Commission data show. That was the third advance in four weeks and the biggest gain since April 7.

Futures jumped 3.1 percent last week to $1,225.30 an ounce on the Comex in New York, the biggest advance since Jan. 16. More than $1.7 billion was added to the value of exchange- traded products backed by gold last week, the most in four months.