Wall Street analysts suggest that investors should do what central banks do.

Despite investors' continuous focus on the U.S. stock market hitting historical highs, many have overlooked an asset that has actually outperformed the S&P 500 index.

In a report released last week, market analysts at Bank of America (BoA) pointed out that gold has been the best-performing asset so far this year.

With the price of gold rising to a historical high of over $2,500 per ounce, the price of gold has increased by about 20% in 2024.

In comparison, BoA noted that cryptocurrencies have risen by 17.7% this year, stocks by 15.4%, the entire commodity sector by only 1.9%, government bonds by 0.6%, and the U.S. dollar by 0.2%.

Advertisement

The price of gold has even surpassed technology stocks, with the NASDAQ Composite Index rising by 17%.

Although investors have largely shied away from the precious metals market, BoA points out that the inflow of gold is the highest in four weeks.

The latest trading data from the U.S. Commodity Futures Trading Commission shows that speculative positions are at a four-year high.

The rebound of gold prices to historical highs in the first half of this year was driven by record demand from central banks.

BoA analysts suggest that investors should follow the lead of central bank governors.

The analyst said: "Do what central banks are doing... buy gold."

"Gold is now the second-largest reserve asset (16.1%, with the euro at 15.6%) and has the lowest correlation with stocks among all asset classes."

As the downside risks in the stock market continue to increase, gold may see more inflows from investors.

BoA does not expect the S&P 500 index to benefit, as the Federal Reserve is looking to start a new easing cycle next month.

The analyst pointed out that a stock sell-off may happen sooner or later.

The analyst said: "History indicates that the Fed's first rate cut precedes a 'soft' landing with more cash inflows, and if it's a 'hard' landing, bonds may be the winners."

"Five out of six Powell-Jackson Hole speeches saw the S&P 500 index fall by an average of 7.5% in the next three months."

Regarding U.S. monetary policy, BoA stated that although the Fed is expected to achieve the third-largest rate cut in a single year in 2024, more rate cuts may be needed due to the continuous growth of U.S. government debt, as well as the need for the U.S. commercial real estate market to roll over $1.5 trillion in CRE loans in this year and next.