(Kitco News) – Gold’s unprecedented rally in record territory has attracted a lot of attention from fund managers; however, some funds are worried that the precious metal run has gone a little too far.
According to Bank of America’s latest Fund Manager Survey, 26% of survey participants said gold is overvalued. According to the survey, gold is the most overbought since August 2020.
The precarious sentiment in the marketplace comes as the gold market continues to defy the odds as the market consolidates near last week’s record highs above $2448 an ounce.
June gold futures last traded at $2,398.70 an ounce, up 0.44% on the day. While some analysts may think that gold is technically overvalued, others have noted that it has robust momentum supported by fundamental demand.
Some analysts have noted speculative positioning in the gold market remains muted as net long bets remain well below it’s 2020 highs.
At the same time, investment in gold-backed exchange-traded funds remains lackluster, despite the recent price gains.
“I don’t see enough public participation in the gold market to say prices have peaked,” said famed commodity investor Dennis Gartman in a recent interview with Kitco News.
The survey of 224 asset managers with $638 billion of assets under management was carried out between April 5 and 11.
Aside from their opinion on gold, the survey shows that fund managers are starting to put their money to work. The report from Bank of America said that cash holdings fell to 4.2% of assets under management from 4.4% a month earlier.
According to the survey, hedge funds have increased their allocations to stocks and commodities and reduced their exposure to bonds. Funds were a net 14% underweight bonds, the most since July 2003.
According to some analysts, investors are piling into risk assets as sentiment surrounding the health of the global economy improves. According to the Bank of America Survey, 78% of respondents said that it is unlikely the global economy will see a recession in the next 12 months; this is the most optimistic hedge funds have been since February 2022.
While there are growing calls that the global economy will continue to see solid activity, a majority of survey participants expect the Federal Reserve will cut interest rates two times this year. Only 8% of funds survey said there is a possibility of only one rate cut this year.
This environment is challenging for gold as higher interest rates push bond yields higher, increasing the opportunity costs of holding gold, which is a non-yielding asset. At the same time, higher bond yields also support a stronger U.S. dollar.
However, many analysts have noted that rising global debt levels and geopolitical uncertainty will continue to support gold, overshadowing the opportunity costs.
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