Hedge Funds Back Away from Gold as Rate Hike Looms

Bloomberg reported that last week hedge funds moved out of gold at the fastest rate in over four months. The movement came on the back of concern that the US Federal Reserve is getting closer to raising interest rates.

As quoted in the market news:

Money managers cut their net-long wagers for a sixth week, U.S. government data show. Investors sold 18.9 metric tons of bullion held through exchange-traded products last week, the biggest reduction since November.

Fed policy makers will meet this week, and key to their debate will be whether the U.S. economy has gained enough steam to warrant removing a pledge to be “patient” on raising borrowing costs in a statement scheduled for March 18. Gains in the labor market are increasing the chances the Fed will raise rates, eroding the haven appeal of gold and sending investors to assets with better yield prospects such as bonds and equities.

Quincy Krosby of Prudential Financial told the news outlet:

The only thing you look at right now is if the Fed would say they’re no longer patient and ready to raise rates, then that would drive gold down. If you think the economy’s continuing to gain traction and momentum, that’s a net-negative for gold, because it does push the dollar higher.

Click here to read the full Bloomberg report.