Chart of the Week – Gold (under)Allocations

April 11, 2023

Under-Allocated: With gold making yet another attempt at breaking out through that all-important US$2000 level, it’s worth reflecting on this pair of charts. Firstly, as discussed in the latest report, gold has been (and likely will continue to be) boosted by falling bond yields and a weaker US dollar. From a technical standpoint it has so far managed to hold onto the $2000 level, and has seen its 200-day moving average turn up with strong cross-currency breadth.

The macro and technical momentum is there, and positioning/flows/sentiment still has ample room to run on our metrics despite the recently renewed enthusiasm as gold has already rallied some 25% off the lows.

But it does beg the question as to whether new gold bulls have already missed the boat. And then you look at these two charts… investor implied allocations to gold (based on ETF market assets) remain well below long-term average, and well below the gold bull market years. It’s equally intriguing and informative for gold stocks — which are arguably also under-owned.

Remember, while most think gold is an inflation hedge, it’s actually going to be best placed in an environment of falling inflation …especially recession, because that’s going to be a scenario where monetary conditions ease (lower bond yields, pivot in Fed policy from tightening to easing, weaker USD), and gold gains.

Key Point: Despite a 25% rally, investors have light allocations to gold.

n.b. Check out the full archives of the Chart Of The Week for more charts.

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Aside from the chart above, we looked at several other charts and macro/asset allocation issues right now:

Gold Price: checking in on gold market technicals + outlook.
Gold Mining Stocks: (what does it mean for this sector)
Tech, Rates, FX: update on where things are sitting.
Backlogs, Bond Yields, Inventories: intriguing macro developments.
US Dollar Valuations: forget the narratives, focus on the charts & data.
US Small Caps: a look at the PE10 ratio for US small cap stocks.
Cross-Asset Valuation Snapshot: explaining the new dashboard.

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