Hedge funds increased bets on a gold rally by the most in three weeks as central banks signaled no end to economic stimulus, driving prices higher just as analysts and traders turned the most bearish in three years.

The funds and other large speculators raised their net-long position by 19 percent to 54,762 futures and options as of April 30, U.S. Commodity Futures Trading Commission data show. Holdings of so-called short contracts retreated 9.2 percent, the most since March 19. Net-bullish wagers across 18 U.S.-traded raw materials jumped 28 percent to 550,182, the biggest increase in seven weeks, led by gains in soybeans, cocoa and crude oil.

Gold rallied 4.9 percent in the past two weeks after entering a bear market April 12. The Federal Reserve raised the prospect of increasing its monthly bond buying on May 1 and the European Central Bank cut borrowing costs to a record low the next day. Billionaire investor Warren Buffett said the metal has no appeal even after the slump, and a weekly Bloomberg survey of analysts and traders was the most bearish since February 2010.

“It’s reasonable to say that the currency debasement and easing measures will support gold,” said Alan Gayle, a senior strategist at RidgeWorth Capital Management, which oversees about $48 billion of assets. “The bulls still have to prove a lot. There is lot of skepticism surrounding gold. We have to watch to see if prices have found a near-term bottom.”

Gold Rebounds

Futures climbed 0.7 percent to $1,464.20 an ounce on the Comex last week. Prices rebounded 11 percent since reaching a two-year low on April 16. The Standard & Poor’s GSCI Spot Index of 24 commodities rose 1.4 percent last week, and the MSCI All- Country World of equities gained 1.7 percent. The dollar slid 0.5 percent against a basket of six major peers, and a Bank of America Corp. Index shows Treasuries fell 0.4 percent. Gold was 0.6 percent higher at $1,472.90 today.

The Fed said at the end of a two-day policy meeting in Washington last week it’s “prepared to increase or reduce the pace of its purchases” of $85 billion in debt a month. Gold surged 66 percent since the end of 2008 as the Fed was joined by central banks in Europe and Japan in printing unprecedented amounts of money, almost doubling sovereign debt to more than $23 trillion, a Bank of America index shows.

Investors’ Faith

The flood of cash spurred investors including billionaire John Paulson to hold the metal as a hedge against inflation. Gold remains the best store of value in an uncertain economy, Elliott Management Corp. told clients even as the $21.8 billion hedge-fund firm founded by Paul Singer lost money on its position this year. Threadneedle Investments, a London-based fund with $131 billion in assets, remains bullish on gold as central banks stick with printing money to weaken their currencies and revive growth.

Some investors’ faith in the metal has waned as inflation fails to accelerate even as central banks add liquidity. Global holdings of the metal through exchange-traded funds slumped to the lowest since October 2011 after touching an all-time high in December. Buffett, the third-richest person in the Bloomberg Billionaires Index, said last year in his annual letter to shareholders that investors should avoid gold.

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