Hedge funds cut gold bullish bets as bullion recovery stalls

After gold's rally in the first half of the year beat gains for commodities, equities and Treasuries, bullion is back to being out of favour with investors.

Hedge funds cut their bullish gold bets for the fourth week in five, sending holdings to a two-month low, United States government data shows. Open interest in New York futures is the smallest in five years, and assets in global exchange-traded products backed by the metal in August posted the biggest monthly drop since May.

Gold prices fell 2.6 per cent since June, heading the first quarterly loss this year, as signs of faster US economic growth bolstered the case for the Federal Reserve to raise interest rates, cutting demand for an inflation hedge. Holdings through exchange-traded products slumped for the fourth time in five months as violence from Ukraine to the Middle East was not enough to revive buying.

"In an environment of sustainable growth, gold is not very attractive, and higher interest rates cannot be good for gold in the long term," said Jim Paulsen, chief investment strategist at San Francisco-based Wells Capital Management. "The days of extraordinary impact from military conflict has diminished."

Futures dropped 7.8 per cent in the past 12 months to US$1,287.30 an ounce in New York. The MSCI All-Country World Index of equities climbed 18 per cent.

The net-long position in gold declined 21 per cent to 92,734 futures and options contracts, US Commodity Futures Trading Commission data shows. That was the biggest decrease since June 3. Short holdings betting on a drop jumped 51 per cent to 36,877, while long wagers retreated 8.3 per cent.

The US economy, the world's largest, grew more than previously forecast in the second quarter, government data showed on August 28.