• A net 45% of investors now view gold as overvalued, the highest reading since Bank of America's survey began in 2008.
  • The precious metal has surged to record highs above $3,300/oz as tariff uncertainties and dollar weakness drive safe-haven demand.
  • "Long gold" is now the most crowded trade in markets, raising risks of a potential reversal.

Gold's Unprecedented Valuation

Investors have never been more convinced that gold prices have overshot fundamentals, according to Bank of America's May Global Fund Manager Survey. A net 45% of respondents called the metal overvalued - surpassing previous peaks during the 2008 financial crisis and COVID-19 pandemic. The reading jumped sharply from 34% in April as prices continued their relentless climb.

"When you see this level of consensus about overvaluation, it typically precedes some mean reversion," said one portfolio manager who participated in the survey but asked not to be named discussing positioning. The bank's research team noted gold has become the "most crowded trade" across asset classes, often a contrarian indicator.

Drivers Behind the Rally

The survey results come as spot gold prices hit fresh all-time highs this week, breaching $3,300 per ounce before paring gains slightly. Analysts point to multiple catalysts: escalating trade tensions between the U.S. and China, concerns about dollar depreciation after weaker-than-expected U.S. economic data, and persistent inflation worries despite central bank rate cuts.

SPDR Gold Shares (GLD), the largest gold-backed ETF, saw assets under management surpass $100 billion for the first time last week. Meanwhile, cash levels among institutional investors jumped to 5.2% from 4.8%, suggesting broad risk aversion beyond just precious metals.

Market Implications

Some traders are already positioning for a potential reversal. Gold options show increasing demand for puts at the $3,200 level, while the metal's 14-day relative strength index has hovered near overbought territory for weeks. "The setup looks similar to early 2020, when gold became extremely overbought before correcting nearly 15%," noted a derivatives strategist at a European bank.

Yet others argue the rally has room to run. "With tariffs back on the table and election uncertainty building, gold could remain bid regardless of valuation concerns," said a commodities fund manager who asked not to be named discussing trading positions. Bank of America analysts maintained their $2,500 year-end price target but acknowledged risks remain "skewed to the upside."

Correction: An earlier version misstated the percentage change in investors viewing gold as overvalued. The correct figure is a rise to 45% from 34% in April.