The Daily Market Report: Gold is a Logical Diversification Option With Stocks and Bonds Seen as Overvalued


14-Apr (USAGOLD) — Gold fell in overseas trading, weighed by persistent expectations that the Fed is still going to raise rates at some point this year. However, the yellow metal has snapped back in early U.S. trading to probe back above $1200.

Yet another disappointing U.S. retail sales number raised renewed doubts about the likelihood of that rate hike. Both the dollar and shares fell on the news, while bonds and gold rebounded.

A Bank of America Merrill Lynch survey of fund managers shows a record number of participants see both stocks and bonds as overvalued. The perceived stark and simultaneous overvaluation of these two markets can be directly attributed to the policies of the world’s central banks, which have flooded the world with liquidity in the years since the financial crisis (even longer for the BoJ).

Trillions of yen, pounds, dollars and now euros have been printed, providing massive artificial demand for bonds. Cheap money then also flows into shares in the never ending quest for yield that can no longer be found in the bond market. Both markets are so distorted now, that 13% of those surveyed by MLBofA see the potential bubble in equities as the biggest tail-risk facing markets right now, according to the FT.

Bubble bubble toil and trouble.

A rising number of investors believe bonds and equities are overvalued, with fears climbing that a bubble could be forming in the latter, according to a Bank of America Merrill Lynch fund manager survey released on Tuesday. — Financial Times

Investors that think they are properly diversified with a classic allocation to both stocks and bonds based on their risk tolerance and time to retirement may be sadly — and dangerously — mistaken. If only their were some alternative asset that were presently perceived to be undervalued. . .

Now may be the ideal time to lighten exposure to shares and/or bonds and add some protection in the form of physical gold. With the yellow metal still in the lower fifth of the corrective/consolidative range, it is a relative bargain compared to the more traditional asset classes.

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