According to the latest Bank of America Merrill Lynch fund manager survey, gold was viewed as the best hedge against protectionism by a third of investors, and a record net 15 per cent of respondents considered it now to be undervalued.
The interest in the precious metal – which surprised many by underperforming in the wake of inflation fears after Donald Trump's election – comes as other popular safe trades appear strained.
In particular, 41 per cent of investors pointed to a long US dollar strategy - a play that has already prompted concerns - as the most crowded trade, while a net 28 per cent of respondents identified the currency as overvalued, marking the highest proportion since September 2006.
The second trade considered most crowded was short government bonds, which 14 per cent opted for.
This came as 34 per cent, when asked to identify the most likely catalyst for the end of the eight-year bull market, pointed to trade protectionist policies. Some 28 per cent identified the main catalyst for a market turn as higher interest rates, while 18 per cent opted for a “financial event”.
Geopolitics also continued to weigh on sentiment more broadly.
When asked to describe the biggest “tail risk” facing them, 36 per cent of respondents pointed to European elections and the associated “disintegration risk” in the eurozone. Some 32 per cent identified the prospects of a trade war, while 13 per cent talked of a crash in global bond markets.
However such concerns come against the backdrop of bullish expectations. According to the research macro optimism was “surging”, with 23 per cent of investors saying they expected a boom – defined as above trend growth and inflation – compared with a mere 1 per cent a year earlier.
However, 43 per cent said they expected secular stagnation – below trend growth and inflation – to emerge, down significantly from 88 per cent a year ago.
On a regional basis, fund managers appeared to be taking advantage of bearish sentiment. Eurozone equities saw allocations rise to eight-month highs, with net 23 per cent overweight, compared with 17 per cent the month before.
Manish Kabra, a European equity quantitative strategist for Bank of America Merrill Lynch, said: “While global fund manager sentiment towards Europe improved slightly, there is an increased fear of European political risk, with sentiment towards French equities particularly low.”
Emerging market equities, which began to perform well last year but then suffered at the hands of protectionism fears, saw allocations improve to net 5 per cent overweight, up from net 6 per cent underweight the month before.
Sentiment on Japanese equities also appeared to be strengthening, with the proportion of investors wanting to be overweight the country in the next year rising from 9 per cent to 14 per cent in a month.