Wednesday, August 19, 2020

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Gold bulls everywhere, but pros are getting worried it’s now overvalued

Gold (GC=F) has been one of the better performing assets this year, going above $2,000/oz this week again after falling from its all-time highs last week.

“Suddenly, everyone wants to talk about gold,“ billionaire investor Jeffrey Gundlach said in a recent webcast.

All the forces gold bulls warn of seem to be pointing in the right direction: ultra easy monetary policy, massive federal spending, a weak dollar, and concerns that all this means inflation down the road.

Credit Suisse analysts recently raised their price target on gold to $2,500/oz, calling the whole narrative a “perfect storm” for the precious metal.

“We see plenty of upside on the gold price and view the correction as a buying opportunity,” Credit Suisse’s Andrew Garthwaite wrote on Friday. “We think policy stays loose (especially fiscal) until unemployment falls to much lower levels in the US, which this time around generates some inflation…”

Furthermore, they see demand rebounding from both consumers and institutions.

“Nearly half of gold demand is jewelry and this fell 46{c34e2c9cd63a11c97fab811dbaaefe0cfbb1edd2527888e1a44d36f3491ee811} in 1H but is likely to recover as GDP recovers,” Garthwaite added. “Central banks account for 15{c34e2c9cd63a11c97fab811dbaaefe0cfbb1edd2527888e1a44d36f3491ee811} of gold demand and their purchases fell by nearly 40{c34e2c9cd63a11c97fab811dbaaefe0cfbb1edd2527888e1a44d36f3491ee811} in 1H. We think central bank buying will increase sharply.”

One of the more notable moments in gold’s current bullish run is Berkshire Hathaway (BRK-A, BRK-B) taking a stake in gold miner Barrick Gold (GOLD). The move surprised many as Chairman Warren Buffett and Vice Chairman Charlie Munger have publicly trashed gold for years.

All that said, the pros are starting to get worried.

Gold looks overvalued, fund managers say. (BofA)

According to Bank of America’s monthly fund manager survey, a net 31{c34e2c9cd63a11c97fab811dbaaefe0cfbb1edd2527888e1a44d36f3491ee811} of respondents believe gold is overvalued, up from 0{c34e2c9cd63a11c97fab811dbaaefe0cfbb1edd2527888e1a44d36f3491ee811} a month ago. The survey also found that long gold ranked as the second most-crowded trade in the financial markets (behind long U.S. tech stocks).

And so, maybe gold isn’t as attractive as it was a month ago. Even gold bulls like Gundlach expect there to be more “short-term reversals.”

But for now, many analysts and investors seem to think the long-term outlook remains bullish for gold.

By Sam Ro, managing editor. Follow him at @SamRo

What to watch today


  • 7:00 a.m. ET: MBA Mortgage Applications, week ended Aug. 14 (6.8{c34e2c9cd63a11c97fab811dbaaefe0cfbb1edd2527888e1a44d36f3491ee811} prior week)

  • 2:00 p.m. ET: FOMC meeting minutes, July meeting



  • 6:00 a.m. ET: Lowe’s (LOW) is expected to report adjusted earnings of $2.90 per share on revenue of $24.15 billion

  • 6:30 a.m. ET: Target (TGT) is expected to report adjusted earnings of $1.58 per share on revenue of $19.82 billion

  • 8:00 a.m. ET: TJX Companies (TJX) is expected to report an adjusted loss of 12 cents per share on revenue of $6.57 billion

  • 8:00 a.m. ET: Analog Devices (ADI) is expected to report adjusted earnings of $1.37 per share on revenue of $1.44 billion


  • 4:15 p.m. ET: L Brands (LB) is expected to report an adjusted loss of 43 cents per share on revenue of $2.16 billion

  • 4:20 p.m. ET: Nvidia (NVDA) is expected to report adjusted earnings of $1.97 per share on revenue of $3.66 billion

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Money managers are getting nervous about gold: Morning Brief