Investors see record-setting gold prices as the most overvalued in nearly 4 years amid dimming recession fears, BofA says

• Gold is the most overvalued it's been since August 2020, according to fund managers surveyed by Bank of America.
• Gold has climbed near records on macro uncertainty, but respondents are actually the most bullish in two years.
• 78% see recession as unlikely, while "no landing" expectations have surged to 38%.

Gold's shining a bit too bright these days, at least according to the most bullish group of investors seen in two years.  

A net 26% of respondents to Bank of America's latest Fund Manager Survey say gold has over-appreciated, making the yellow metal the most overvalued since August 2020. 

The monthly survey, published Tuesday, follows as the commodity notched a string of record highs, surging above $2,400 last week. Analysts expect even more out of it, with forecasts ranging from 25% to 50% upside over the next few years.

The current rally is on account of growing macroeconomic uncertainty, as tensions rise in the Middle East and the Federal Reserve appears stalled in its fight against inflation. With interest rate cuts now uncertain and recession indicators still flashing red, hard landing forecasts are further propelling the safe haven asset. 

But it's a different world from the fund managers' point of view, with 78% of respondents seeing a global recession as unlikely in the next 12 months — that's the most since February 2022.

In fact, investors have become bullish on global macro outlooks for the first time since December 2021, and calls of a "no landing" outcome have surged to 38%, while hard landing outlooks have faded to 7%.

And while Wall Street has been readjusting to the possibility of a higher-for-longer US interest rate regime, only 8% of those surveyed expect a no cut scenario. Instead, majority expect at least two cuts in 2024.

Risk is rising with the blowout optimism, however, as cash levels have fallen to 4.2% among those surveyed. Bank of America considers anything below 4% as a sell signal for equities.

"Bull sentiment not quite at 'close-your-eyes-and-sell' levels (i.e. cash <4%) but risk assets tactically much more vulnerable to bad news than good," the survey said. 

While gold might not be winning over managers, the broader commodity market appears to do be doing so, with allocations into the sector witnessing the biggest monthly increase on record. 

With investors now net 11% overweight commodities, this marks the biggest overweight in a year, and comes as materials such as copper, oil, and cocoa have all rocketed in recent months.