LONDON, April 16 (Reuters) - For the first time in two years, U.S. megacap tech stocks are no longer considered the most crowded trade on the planet. They've been overtaken by gold, and that's partly related to eye-popping bullion buying from China.
Bank of America's latest monthly survey of global fund managers throws up some fascinating details about how investors' anxieties and trading patterns have shifted as the trade war has escalated.
Global investors, who cite a recession triggered by a trade war as the single biggest risk over the next year, have slashed their holdings of U.S. equities over the past two months by the most ever. Consequently, 36% of funds are now underweight Wall Street stocks, the most bearish positioning in almost two years.
That pullback has been so significant that pricey Big Tech stocks, led by the "Magnificent Seven" megacaps, have lost their most crowded trade crown for the first time in 24 months.
And in a nervy environment in which the U.S. Treasury market has been shaken and fears of a widespread exit from U.S. assets have weighed on the dollar (.DXY), it was perhaps unsurprisingly gold that unseated the "Mag 7". Almost 50% of BofA respondents now cite the dash for the precious metal as the most crowded position.
Gold prices have soared 23% so far this year to record highs above $3,200 per ounce, and a net 42% of global funds expect it to become the best-performing asset this year, more than twice the percentage who see cash or Treasuries achieving that.
And they have a point. It would be hard for any other asset class to catch up with what gold has already done so far in 2025.
WISDOM OF CROWDS?
Investors have continued crowding into gold as U.S. Treasuries - the long-time safe haven for global reserve and sovereign funds - have been shaken violently. Last week alone, the 30-year Treasury yield soared by the most in more than 40 years even as U.S. stocks stumbled.
While multiple theories circulated about the cause of the bond ructions, sales of Treasuries by China - perhaps through numerous proxy holdings - were one of them. The finger pointed in that direction as President Donald Trump was ramping up bilateral barriers with China in a tit-for-tat spiral even while easing off tariffs elsewhere.
There's no clear evidence yet as to what triggered the bond blowout. But China has continued to reduce its Treasury holdings in the last two years and it has massively increased the gold it holds in its foreign reserves.
Gold now commands an 8% share of China's reserve coffers, almost three times the percentage just before the pandemic.
Societe Generale strategists examined the link and pointed out that British government export data, released last Friday, confirms that February marked another month of significant gold volumes heading to China from Britain. China brought in a massive 50 metric tons, the third-largest export volume recorded by the UK in the past two years.
SG estimates that a "staggering" 700 metric tons have now been brought into China over the past two years, based on volumes tracked by His Majesty's Revenue & Customs. And SG noted that "much finds its way to the central bank".
It's also notable that flows into Chinese physically backed gold exchange-traded funds so far this month have exceeded those for the whole of the first quarter, overtaking inflows registered by U.S.-listed funds, World Gold Council data showed on Monday.
Why Britain? The Bank of England is known for secure vaults and reliable financial services, so it serves as a custodian for many foreign countries' gold holdings.
Why China? Beijing has accelerated the unwinding of its U.S. Treasury holdings in recent years, particularly since Russia's invasion of Ukraine, when Moscow's foreign reserves were frozen in the U.S. and Europe. Physical gold is one of few holdings not prone to a similar action.
Can one tie together the gold surge, the U.S.-China trade war and the recent Treasury market wobble? SG certainly thinks the link is worth considering.
"The rotation from U.S. Treasuries into gold seems like something we can loosely correlate and somewhat keep track of – and the selling of Treasuries matching that of gold exports to China is something we can't help but take notice of."
Not quite a smoking gun, but maybe a warm barrel.
The opinions expressed here are those of the author, a columnist for Reuters
By Mike Dolan; Editing by Lisa Shumaker
