Are There Excessive Gold and Bond Bulls?

The current financial landscape is showing a surge in bullish sentiment surrounding both gold and bonds, prompting the question of whether there are too many optimists in these markets.

Analysts at Strategas have consistently advocated for a “long” position in gold and bonds throughout the year, a perspective that has aligned well with ongoing market trends. However, recent developments indicate that this previously contrarian view may now be nearing a point of saturation.

“$2800 has been and continues to be our target for gold, with near-term support at the upward sloping 50-day average, approximately 2485,” the analysts noted. Despite maintaining this outlook, the sentiment surrounding gold has become increasingly aggressive, as an increasing number of investors are flocking to the asset.

What was once a contrarian perspective has now shifted to mainstream acceptance, which typically calls for caution. While analysts refrain from labeling the sentiment as excessively bullish, they advise vigilance for the remainder of the year.

Similarly, the bond market is seeing a growing number of supporters. Earlier this year, a bullish stance on bonds was an isolated position; however, it’s now attracting a crowd. This evolution reflects broader market dynamics, particularly in light of recent interest rate decisions.

The rise in yields for 10- and 30-year Treasuries since the last Federal Open Market Committee meeting demonstrates that, although yields have increased, they still face significant resistance levels within a downward trend. Globally, bond yields, especially shorter-term rates like the German 2-year bond, are continuing to decline, indicating ongoing pressure on yields.

The rising number of investors bullish on both gold and bonds also mirrors broader market anxieties, particularly concerning persistent inflation and geopolitical uncertainty. These conditions often boost demand for safe-haven assets. However, Strategas cautions against complacency, noting that when too many investors take the same side of a trade, it may indicate a potential reversal or at the very least, a pause in the current trend.