Is gold undervalued
A record number of fund managers in the BAML (Bank of America Merrill Lynch) July survey believe that gold (GLD) (IAU) is undervalued. About 17% of them said gold was trading below its actual market worth, and 25% said oil (USO) is overvalued.
Gold falls to fresh one-year low
Investors should note that on July 17, gold fell to another one-year low, touching $1,228 per ounce after Fed chair Jerome Powell said the Fed is on a path of gradual interest rate hikes since the US economy continues to perform well.
BAML survey as a contrarian indicator
Investors should remember that the BAML survey is usually taken as a contrarian indicator. After long US dollar trade in December 2015, the dollar plunged more than 8% in the next six months. The survey indicated that the BAML bull and bear indicator is close to an extreme bearish contrarian buy signal.
In a note to clients, BAML advised contrarian bears to position through long gold, short US technology (IYW) (XLK), and FAANG. It stated that contrarian bulls should position to benefit from overblown trade war fears through yield curve steepening (BND), emerging markets (EEM) or European Union (EZU) stocks, and a weaker US dollar (USDU).
For more on gold prices and why it could seem like a good idea in the second half of 2018, be sure to read Why Second Half of 2018 Could Be Much Brighter for Gold.