hedge funds raised bets on a gold rally

Hedge funds raised bets on a gold rally by the most in two months as the U.S. economy expanded less than previously estimated, boosting speculation the Federal Reserve will maintain the pace of stimulus.

Speculators raised their net-long position by 35 percent to 48,096 futures and options by May 28, the biggest gain since March 19, U.S. Commodity Futures Trading Commission data show. Most of the gain came from a drop in short bets, which reached a record a week earlier. Net-bullish wagers across 18 U.S.-traded commodities climbed 13 percent to a nine-week high of 652,708 contracts, led by gains in corn and natural gas.

The U.S. economy grew at a 2.4 percent annualized rate in the first quarter, the Commerce Department said May 30, cutting its previous estimate of 2.5 percent. Fed Chairman Ben S. Bernanke said May 22 that ending the central bank’s stimulus program prematurely could endanger the recovery. Bullion surged 58 percent since the end of 2008 as central banks printed money on an unprecedented scale to boost growth.

“Gold continues to be useful as an insurance policy in people’s portfolios to guard against uncertainty and possibly some economic dislocation,” said Michael Cuggino, who manages about $14 billion of assets at Permanent Portfolio Family of Funds Inc. in San Francisco. “You have a lot of monetary creation going on, and while inflation is not a current threat, that doesn’t mean it’s not a threat at some point.”