"Long gold" remains the most crowded trade for the third month in a row

The BofA Global Fund Manager survey is always a nice snapshot of the current positioning and thinking in the markets. According to the latest survey, "long gold" remains the most crowded trade for the third month in a row. Gold had lots of tailwinds this year with stagflationary fears and geopolitical events. The next most crowded trades are "long Mag 7" and "short US dollar".

The "short US dollar" positioning should be concerning for sellers and that's what I've been highlighting since late April. In fact, the greenback continues to trade more or less around the April levels against most major currencies. I mean, just by looking at the chart below I would be very uncomfortable being on the short side without very strong reasons.

The other interesting chart is the one asking about the biggest tail risk that fund managers are keeping an eye on. We can see that the "trade war triggering a global recession" receded in June's survey. That should have been expected and it's what the markets traded on in the past months.

The risks that became more important are "inflation causes the Fed to hike" and "credit event driven by disorderly rise in bond yields". These two are connected because they would both be driven by the Fed's reaction function. I've been highlighting that the next macro risk for markets would be inflation and/or failure of Trump's tax bill. So, keep an eye for developments on this front.