Morning Gold Report: Gold Supported by Weaker Stocks

June 19 a.m. (USAGOLD) -- Gold has surged back above the $900 level following yesterday's breach of Monday's high at 894.50 and close above the 20-day moving average.

A close above the 50-day moving average today (893.62) would bode well for a short-term push to challenge the 100-day MA at 915.94. Above that, chart/Fibonacci resistance at 935.30/938.85 attracts.

We anticipated that recent tests in the DJIA above 13,000 would prove unsustainable and now the Dow appears poised to retreat below 12,000. Such a move would clear the way for a challenge of the lows for the year at 11,650.44 (17-Mar) and 11,508.74 (22-Jan).

Stocks have been losing ground recently on heightened worries about the banking sector and falling economic growth. The latest Merrill Lynch Global Fund Managers Survey shows that fund managers have been scaling back on stock and bond positions in favor of cash.

The survey reflects the most negative view of equities in a decade, a period that includes the bursting of the tech bubble and 9/11. Of the 204 asset allocators surveyed, 27% were underweighted in stocks. A mere 1% thought stocks were undervalued in June, down from 25% in March.

Of those same fund managers, 42% are now overweighted in cash, up from 31% last month. This may explain the recent dollar gains to some degree. However, with US rate hike expectations diminishing, the dollar is vulnerable to further retracement.

With an ECB rate hike likely in Jul, I'd be looking more toward the euro as a place to park funds formerly allocated to equities. With risk aversion on the rise, low yielding safe-haven currencies such as the yen and Swiss franc are also likely to catch a bid in the short-term. This all plays into our bearish dollar scenario, which would be positive for gold.

With funds already significantly overweighted in oil and gas, additional safe-haven flows out of equities could well find their way into the gold market. Diversification flows out of oil as the end of the quarter approaches may increase the appeal of the yellow metal in the short-term as well.

With institutional fund managers taking a rather dim view of stocks, it's just a matter of time before individual investors also start looking at alternative assets. Unfortunately, it often takes a rather sizable drawdown in ones personal portfolio to inspire action. Don't let that happen to you.

The professionals are already diversifying out of stocks, now is the time for the individual investor to do the same. Consensus wisdom is that 10% - 30% of ones portfolio should be in an alternative asset, one not correlated with the more traditional asset classes.

Physical gold is the ultimate hedge, offering protection against a declining dollar, inflation, systemic risks to the banking system, general economic uncertainty and geopolitical risks. It is also the only asset that is not simultaneously someone else's liability.

If you are seeking to preserve your wealth in these turbulent times, a physical gold purchase is well worth considering.