Citi Reduces Gold Exposure on Hawkish Federal Reserve Outlook

Citi has reduced its gold holdings, citing a significant shift in its outlook on U.S. Federal Reserve policy toward a more hawkish stance.

Reversal on Rate Expectations

The bank announced it has cut exposure to gold within its GMS portfolio and overall asset allocation, a move that unwinds a previous bullish position. Citi had initially added long gold spot positions based on expectations of a dovish Fed and a potential U.S. Treasury buyback announcement, which it believed would support prices for the precious metal.

This strategy was reversed following developments after the recent Jackson Hole symposium. According to the bank, a market repricing toward a more aggressive Fed policy, compounded by a rally in energy prices, fundamentally altered the investment case for gold.

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Hawkish Fed Dims Gold's Allure

Citi's economists now anticipate an interest rate hike from the central bank, prompting the strategic reduction in gold holdings. The bank explicitly identified U.S. interest rates as the primary driver for gold prices when explaining its decision.

For investors, a hawkish monetary policy typically creates headwinds for non-yielding assets like gold. Higher interest rates increase the opportunity cost of holding bullion, which pays no dividend or interest, and tend to strengthen the U.S. dollar, making the dollar-denominated commodity more expensive for foreign buyers.