Gold is up 25% this year and traded above 1,897oz, just shy the Y 2011 record high at 1,921.
Global stocks measured by the MSCI World index, have recovered almost all of the losses they suffered on the instant recession sell-off brought on by the world economy in lockdown, and are within 5% of regaining their February highs.
A look at where the smart money is going, though, suggests one of these rallies may prove unsustainable.
In Q-1, sovereign funds had reduced their exposure to equities to the lowest level since at least Y 2014, according to an annual survey published this week by Invesco Ltd. The firm cited “end of cycle concerns that led to decreasing strategic allocations” as the driving force away buyers of stocks.
More than 33% of wealth funds plan to cut their equity holdings in the coming year, with 18% intending to trim by at least 5%.
Private equity and infrastructure are poised to be the Key beneficiaries of investment flows, according to Invesco, which surveyed 83 sovereign wealth funds and 56 central banks with total assets of $19-T.
Hence the rising enthusiasm for gold.
Gold’s performance this year has been super. Gold bugs applaud the precious Yellow metal as an insurance policy against financial adjusting by monetary authorities that will 1 fine day trigger runaway inflation. Note that central banks have been putting more of their reserves into gold in recent years, the survey shows.
That interest has further to run.
About 20% of the world’s central banks plan to increase their gold holdings in the coming year, while 23% of sovereign funds intend to boost their exposure according to the survey.
Their motivations and their methods are different.
Sovereign funds see gold as an inflation hedge with a low correlation to other financial assets, and they use ETFs, gold futures and gold swaps as investment vehicles.
Central banks view the precious Yellow metal as an alternative to the $14-T of global debt with negative yields and as a way of reducing their reserves’ exposure to USD. They hold physical gold.
But the direction is the same, as it is just a matter of time until gold reaches a record high and beyond.
Gold bugs rejoice because the smart money of sovereign funds and central banks is with them.
New home sales surged 13.8% M-M in June to a seasonally adjusted annual rate of 776,000 That was the strongest pace of sales since July 2007 and higher than the pre-virus chaos pace of 774,000 seen in January. On a Y-Y basis, new home sales are up 13.7%. Stay tuned…
Friday, the major US stock market indexes finished at: DJIA -182.44 to 26469.89, NAS Comp -98.24 to 10363.26, S&P 500 -20.03 to 3215.63
Volume: Trade on the NYSE came in very light at 711-M/shares exchanged
HeffX-LTN’s overall technical outlook for the major US stock market indexes is Bullish with a Very Bullish bias at the week ending 24 July 2020.
- NAS Comp +15.5% YTD
- S&P 500 -0.5% YTD
- DJIA -7.3% YTD
- Russell 2000 -12.0% YTD
Looking Ahead: Investors will receive Durable Goods Orders for June Monday
Have a healthy weekend, Keep the Faith!