Yellen gives gold bulls biggest rally on rates since January

CHICAGO: Janet Yellen gave gold bulls a gift when she signaled policy makers aren't rushing to raise interest rates. Gold had its biggest weekly gain in two months on the prospect that US rates will stay lower for longer. The value of assets in exchange-traded funds (ETF) backed by bullion rose by $736 million, also the most since January .

The dollar had the steepest weekly slide since 2011 after Federal Reserve Chair Yellen and her colleagues cut their forecast on US rates on March 18.

That revived interest in gold, which generally offers returns only through price gains. Some money managers misjudged the move, cutting their net-long position in gold futures to the lowest level since 2013 the day before the Fed statement.

“The market sentiment is that the Fed is going to take it easy, and that's why the dollar has stopped gaining and gold moved up,“ Donald Selkin, who helps manage about $3 billion as chief market strategist at National Securities Corp in New York, said by phone on March 20. “All of the experts got bearish right at the bottom.“

Gold futures, which jumped 2.8% to $1,184.60 an ounce last week, traded 0.1% lower at $1,183 on March 23. The Bloomberg Commodity Index of 22 raw materials rose 2% last week, as the Bloomberg Dollar Spot Index fell 2.2%. The MSCI All-Country World Index climbed 3.2%.

Fed officials on March 18 lowered their estimates for where borrowing costs will be at the end of 2015 to 0.625%, from December's estimate of 1.125%. Traders had been exiting precious metals in anticipation of steeper rate gains, which usually send investors to assets with better yield prospects such as equities and bonds.

The net-long position in gold declined by 46% to 35,121 futures and options in the week ended March 17, according to US Commodity Futures Trading Commission data published three days later. That was the lowest since December 31, 2013, and the biggest cut since June 2007.

Part of the problem for gold, a traditional hedge against inflation, is that investors are confident the Fed will start lifting benchmark rates from near zero fast enough to prevent consumer prices from surging as the economy rebounds.

The benchmark US rate has been at a record low since 2008, and the Bloomberg Dollar Index, a measure against a basket of 10 currencies, is trading near its highest in at least a decade.

Artur Passos, who produces the metals outlook at Itau Unibanco Holding, said his bearish view on gold hasn't changed after the Fed statement. Prices will post a third straight annual decline in 2015, according to Passos, who was the most accurate among 20 gold forecasters over the past two years, data compiled by Bloomberg Rankings show. “We haven't seen any significant whiff of inflation, and the strong dollar usually works against gold prices in the US,“ Walter Hellwig, senior VP at BB&T Wealth Management said by phone on March 19.

Gold dropped 29% in the previous two years as the dollar surged and inflation stayed low. Prices climbed 70% from Decem ber 2008 to June 2011