BofA Gold is undervalued since 2009


18 August, AtoZForex.com, Vilnius – The Bank of America Merrill Lynch has published its latest survey for gold. The analysis was conducted to find out how major fund managers are handling their funds. As it turns out, a few similarities show up between today’s market and the post-Lehman collapse of 2009 indicating that gold is undervalued.

As indicated, the investors are covered with "bearish sentiment" having two-thirds pointing to Chinese recession and an Emerging Markets debt crisis as the two largest “tail risks” for the yellow metal out there, meaning obstructions that are not expected to happen, but are plausible.

To date, cash holdings have increased to 5.2%, an amount near the record of 5.5% seen in the aftermath of the global financial crisis.

Although only a minority believes that the precious metal is undervalued, the last time such signals were sent was 2009 and form that date the yellow metal more than doubled in price within two years time, as indicated in a chart below.

BofA Chart 1, gold is undervalued

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In the survey, a total of 202 managers have participated, who hold a combined amount of $574 billion in assets under management. The participants have been massively selling off assets associated to commodities and replacing positions with tech stocks.

BofA Chart 2

Kevin Chen, a co-founder and chief investment officer at one of major US-based hedge funds Three Mountain Capital notes that they “believe that following the recent significant decline of gold prices, there is likely to be more upside than downside for gold,” further adding that “the safe-haven demand is clearly part of the reason for buyers of gold.”

See also: Gold Weekly smells bullish

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