Gold price rally gathers steam as hedge funds go long 258 tonnes

The rally in the gold price gathered some steam on Monday, after data out late on Friday showed hedge funds increasing their bullish bets by over 30%.

In lunchtime trade on the Comex division of the New York Mercantile Exchange, gold futures for April delivery traded near the high for the day at $1,337.60 an ounce, up $14.00 from Friday's close.

The metal hit $1,339.20 early on, the highest since October 31 in brisk trade of more than 110,000 contracts by midday.

Gold is up 11.7% in 2014 and momentum appears to be building.

Long positions – bets that the price will go up – held by so-called managed money increased by 8% to 140,840 lots in the week to February 18 according to Commodity Futures Trading Commission data released after the close of business on Friday.

At the same time short positions were cut by 10,603 to just under 50,000, which translates on a net basis hedge funds holding 31% more bullish positions: net longs of 90,942 lots or 9.1 million ounces/258 tonnes.

The bullish positions are not far off the levels seen last September when the price of gold was closer to $1,400. Last week's jump came on top of a 17% increase in bullish bets the week before.

After a dismal 2013 that saw gold lose 28% in value and suffer the worst price performance in 32 years, the yellow metal has surprised a few pundits this year.

Last week Edel Tully, closely watched precious metals strategist at UBS, said she was moving from "outright bearish" to "neutral/slightly positive", upping the Swiss investment and London bullion bank's prediction for the average gold price this year by $100 an ounce.

Investment guru and closely followed newsletter writer Dennis Gartman also announced he has "quietly" turned bullish on gold's prospects explaining that:

"Gold prices have gone down, and the market has beaten prices up about as much as they can. Bad news came out several times; you've had gold being downgraded by multiple brokerage firms, and it didn't break."

Not everyone is convinced that the rally in the price of gold is sustainable.

The median forecast for the fourth quarter 2014 of the nine gold analysts tracked business news wire Bloomberg is $1,165 an ounce and the two most accurate gold price forecasters in the group are even more bearish, seeing the price move to $1,050 and below.

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