Yellen Gives Gold Bulls Biggest Rally on Rates Since January – by Lydia Mulvany (Bloombeg News – March 22, 2015)

(Bloomberg) — 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 U.S. rates will stay lower for longer. The value of assets in exchange-traded funds 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 U.S. rates 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 March 20. “All of the experts got bearish right at the bottom.”

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

Rate Forecast

Fed officials on March 18 lowered their estimates for where borrowing costs will be at the end of 2015 to 0.625 percent, from December’s estimate of 1.125 percent. 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 percent to 35,121 futures and options in the week ended March 17, according to U.S. Commodity Futures Trading Commission data published three days later. That was the lowest since Dec. 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 U.S. 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.

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