Spooked Gold Bull Cohen Trims Holdings as Yields Rise

(Bloomberg) -- The Federal Reserve is giving some gold investors a case of the jitters.

Cohen & Steers Capital Management, which oversees $61 billion in assets, was overweight on gold until last week, when comments from some Federal Reserve officials boosted speculation that the central bank will tighten monetary policy as soon as this month. With the interest-rate decision due next week, the asset manager opted to play it safe, paring its gold allocation.

The New York-based firm isn’t alone. Over the past week, investors pulled $698 million from SPDR Gold Shares, the largest exchange-traded fund backed by the metal, taking their holdings to the lowest since June, data compiled by Bloomberg through Tuesday show. Through Tuesday, aggregate open interest in gold futures dropped for four straight sessions, the longest stretch since May.

“We’ve been overweight gold for most of this year, which has been a good place to be,” Ben Ross, a portfolio manager at Cohen & Steers, said in an interview at the Bloomberg headquarters on Tuesday. “Gold would get hit pretty hard in a rising rate environment. We’re market-weight right now, and the reason is the 10-year Treasury yield is starting to really move and being in gold scares us.”

Spooked Gold Bull Cohen Trims Holdings as Yields Rise

The gold rally has stumbled after the metal posted its best first half in almost four decades. While traders are pricing the odds of an increase in borrowing costs next week at 18 percent, those chances climb to more than 50 percent by year end, and some investors are cashing in gains now. The metal has given up its second-half price gain.

“There’s fear of the unknown as the gold market overall is looking at whether the Fed will move or not, and there’s a small window for them to do it,” Tim Evans, the chief market strategist at Long Leaf Trading Group Inc. in Chicago, said in a telephone interview. “We’ve been going through this cycle of whether Fed will raise rates and what the impact will be.”

On Tuesday, the 10-year yield on U.S. Treasury notes climbed to the highest in three months, while gold futures capped the longest losing streak since June 23. That same day, the yield on the Bloomberg Barclays Global Aggregate Index climbed to 1.24 percent, the highest since June 23.

While traders are downplaying the odds of a rate hike this month, some policy makers have argued in favor of the move. Boston Fed President Eric Rosengren, who shifted his stance in recent months in favor of monetary tightening, warned Friday that waiting too long to raise interest rates risks overheating the economy.

Rate Case

Last month, Fed Chair Janet Yellen said the case for a rate hike “has strengthened,” and Vice Chairman Stanley Fischer said that prices are “within hailing distance” of the Fed’s target.

In the week ended Sept. 6, just days before Rosengren spoke, hedge funds and other large speculators boosted their net-long positions in gold futures and options by 17 percent, the most since June 14, according to U.S. Commodity Futures Trading Commission data compiled by Bloomberg.

Cohen & Steers pared its gold holdings to match the metal’s weighting in the Bloomberg Commodity Index of almost 12 percent, just as prices hit about $1,350 an ounce last week, Ross said. Gold futures for December delivery slipped 0.6 percent to settle at $1,318 an ounce at 1:36 p.m. on the Comex in New York.

“If the Fed unexpectedly does something -- or it could be another central bank around the world -- we could see not only ETF money flows come out, which are pretty elevated,” Ross said. “We could see money move out of futures on the institutional side, because you have net spec length in gold pretty elevated as well.”