Today’s market landscape is seeing an increase in bullish sentiment around gold and bonds, a shift that begs the question: are there too many bulls in these assets?
Strategas analysts have led the way in advocating a “long” position in gold and bonds throughout the year, a stance that has so far been in line with market trends.
However, recent developments suggest that this once opposing view may now be nearing saturation point.
“$2800 was and remains our target for gold, with near-term support at the 50-day moving average (around 2485),” the analysts said.
However, sentiment around gold has become increasingly bullish, with the market seeing an increasing number of investors pile into the asset.
Sentiment has moved from contrarian to dominant, a signal that usually warrants caution.
They refrain from calling the sentiment overly bullish, but it is something they suggest we watch for the rest of the year.
Likewise, bond bulls are becoming less of a niche group. At the start of the year, being bullish on bonds was a lonely position.
Now, a crowd is forming. This shift reflects broader market movements, particularly following recent interest rate decisions.
The bounce in 10-year and 30-year Treasury yields after last week’s Federal Open Market Committee meeting shows that while yields have risen, they remain in a downtrend, struggling against significant levels of resistance.
Global bond yields, particularly short-term rates such as the German 2-year bond, continue to push lower, suggesting continued pressure on yields.
The growing number of investors bullish on both bonds and gold reflects broader market concerns, particularly around persistent inflation and geopolitical uncertainty.
These conditions typically lead to demand for safe haven assets. However, Strategas emphasizes the importance of monitoring this crowded transaction. In the markets, when too many investors take the same side of a trade, it can signal the possibility of a reversal or at least a pause in the trend.
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Reference;
Acharya, N. (2024) Are there too many gold and bond bulls? By Investing.com, Investing.com. Investing.com. Available at: https://www.investing.com/news/commodities-news/are-there-too-many-gold-and-bond-bulls-3634211 (Accessed: 29 September 2024).
