Fed liquidating hedge fund
Hedge funds increased their bets on gold as prices fell after gold’s gains in 1Q16.However, hedge funds and money managers curbed their bets on gold as it fell steadily in May.
As the cautious sentiment spread across the Market and gold investors’ hopes dissipated, large money managers liquidated some of their gold.The tumbling precious metals also led to the fall of funds like the ETFS Physical Swiss Gold Shares ETF (SGOL) and the Power Shares DB Gold Fund (DGL).These two funds fell 3.6% and 3.7%, respectively, on a trailing-30-day basis.Among silver-based funds, the ETFS Physical Silver Shares ETF (SIVR) and the Velocity Shares 3x Long Silver ETN (USLV) fell 6.5% and 18.5%, respectively, during the same timeframe.The holdings of the SPDR Gold Shares ETF (GLD), the world’s largest gold-backed ETF, rose 0.71% to 881.4 tons on Friday, June 3. During the last week of May, money managers, who have been bullish since January, reduced their wagers on gold.
The primary reason behind the negative sentiment of gold investors is the prevailing fear of a rate hike by the Fed (Federal Reserve).
However, the probable delay in the interest rate hike gives some breathing room to non-yield–bearing assets like gold, silver, platinum, and palladium.
All these metals bear no yield and thus underperform the Treasuries if the latter offer a higher interest rate.
On September 23, 1998, a group of fourteen banks and brokerage firms invested $3.6 billion in Long-Term Capital Management L. While the Federal Reserve brought the market participants together and oversaw the refinancing, it did not put its own funds at risk.
The capital infusion forestalled a fire sale of LTCM assets into already turbulent markets and instead allowed for an orderly liquidation of the hedge fund’s holdings.
Rather, creditors of LTCM—who had the most to lose from its bankruptcy—arranged and financed the rescue.