Too much cash
Investors are skeptical of the outlook of stocks and bonds ahead of the uncertainty surrounding US elections. This could be the reason that many investors are sitting on the sidelines with piles of cash.
According to the most recent survey by Bank of America/Merrill Lynch (BAC), fund managers were cautious ahead of the US presidential election and concerns regarding the European Union. The average cash balances stood at 5.8% in October, which is higher than 5.5% in September. This is the highest level since November 2001. Almost the same level was reached prior to the Brexit vote.
Waiting on the sidelines
Earlier this week, investors were waiting for the uncertainty to dissipate after the results of the US elections. Investors are also waiting for the Federal Reserve meeting in December before initiating new positions in the market.
Prior to the election, investors perceived a Trump victory as clearly pushing some of these cash holdings toward gold and other safe-haven assets. On the other hand, they perceived a Clinton win as precipitating a short-term upward move in the equity markets.
According to the Blackrock Investor Pulse Survey, “Nearly two-thirds (63%) of Americans say the upcoming Presidential election has impacted their investment decisions over the past year, with many increasing their allocation to cash.”
The above chart shows the weekly flows into money market funds, a proxy for cash. For the week ended November 2, 2016, $36 billion was absorbed into money market funds.
Precious metals such as gold and silver have some intrinsic value. They typically retain their value, especially in times of heightening uncertainty and crisis. The increasing economic uncertainty could lead to further appreciation in the price of gold.
This movement would benefit miners that are leveraged to gold prices, including Randgold Resources (GOLD), Harmony Gold (HMY), Eldorado Gold (EGO), and Alacer Gold (ASR). These stocks contribute 10.6% to the VanEck Vectors Gold Miners ETF (GDX).