Fear factor: Investors rush into gold and other havens as stocks near highs

Investors are piling into haven assets such as gold, the Swiss franc and cash as U.S. stocks approach all-time highs, looking to hedge big moves in equities amid economic uncertainty and a resurgent coronavirus pandemic.

Prices for gold are up 22% this year and stand near record levels, as the metal draws investors seeking shelter from a potential reversal in stocks. The Swiss franc is among the year’s best performing currencies and allocations to cash remain historically elevated.

The rallies in these assets – which tend to attract demand in uncertain times – have taken place alongside a nearly 50% climb in the S&P 500 from its 2020 lows, illustrating the conundrum many investors have faced in recent months.

While sitting on the sidelines has proven a disastrous strategy as stocks rallied, many have become unsettled by stretched equity valuations and a coronavirus resurgence that has all but extinguished hopes of a quick U.S. economic recovery. The S&P recently traded at 3,268, less than 5% shy of its Feb. 24 record high.

Only 14% of fund managers in a July survey from BofA Global Research believe the recovery will be a quick, “V-shaped” one, down from 18% last month. Cash levels among investors remain high on a historic basis, at 4.9%, the survey showed.

Other factors have also driven the moves in havens. Gold, which normally struggles to compete with yield-bearing assets, has become more attractive to investors after the Federal Reserve cut rates to historic lows. Gold has also drawn investors worried that unprecedented levels of stimulus could cause inflation to rise. Investors have also piled into inflation-protected bonds as a hedge.

Fear factor: Investors rush into gold and other havens as stocks near highs, Reuters, Jul 22