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Investors Flock To Money Market Funds and Gold for Safety

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EDITOR NOTE: We like to think the two words “safe” and “smart” go hand in hand. Well, if you think long and hard about it, they often do. Not always, but often. Plus, the operative word in the sentence “if you think long and hard…” is the word “you.” Not your neighbors. Not the crowd on your favorite social media app. Not your investment guru. Just you. So when you see $68 billion in “safe haven” capital flowing into money market funds that are paying negative yields--meaning, hardly any yield minus the rate of inflation--then you have to determine for yourself whether the “safe” bet in large numbers--in short, the herd--really is the smart bet. Because any kind of money market yield under the inflation rate is a drowning investment. And if the herd goes into the ocean, well, do you really want to follow them? In sharp contrast, the smart money--only $2.6 billion worth--invested in gold. This is where safety in common sense versus popularity as a form of perceived safety diverges. Think twice about the direction in which you’re headed.

LONDON (Reuters) - Safe-haven assets such as cash and gold funds drew investors during the week to Wednesday, BofA's fund flow statistics showed on Friday, a sign of growing concern over inflation and the potential roll back of central bank stimulus.

Money market funds attracted $68 billion, the largest weekly inflow since April 2020, BofA said citing EPFR data. Gold sucked in $2.6 billion, the largest inflow in 16 weeks.

But investors did not stop chasing stocks, which took in $17.9 billion, though BofA warned that peak positioning, policy and profits could lead to low or negative stock returns in the next 3-6 months.

Some half-a-trillion dollar has gone into equity funds so far this year and that's more than the previous 12 years combined, BofA added.

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