"New Global Order = New Global Bull Market = Gold and Silver Bull Market!" Bank of America: Gold Expected to Break $6,000

Author: Zhao Ying, Wall Street Insights

Bank of America's chief investment strategist, Hartnett, believes that Trump is pushing for global fiscal expansion, creating a "new world order = new world bull market" scenario. Under this framework, the bull market for gold and silver will continue, while the biggest risk at present lies in the rapid appreciation of the yen, won, and NT dollar, which could trigger a global liquidity crunch.

The yen is currently near 160, approaching its historical low, and its exchange rate against the yuan has hit its lowest level since 1992. Hartnett warns that a rapid appreciation of these extremely weak East Asian currencies could reverse capital outflows from Asia, threatening global market liquidity.

In terms of asset allocation, Hartnett recommends going long on international stocks and assets related to "economic recovery," while also being optimistic about the long-term prospects of gold. He believes China is his most favored market because the end of deflation in China will be a catalyst for bull markets in Japan and Europe.

Gold is poised to break its all-time high of $6,000, while small-cap and mid-cap stocks will benefit from interest rate, tax, and tariff reduction policies. However, the sustainability of this optimistic outlook hinges on whether the US unemployment rate can remain low and whether Trump can boost his approval ratings by lowering the cost of living.

1. The new world order has spurred a global bull market.

Assuming the yen does not collapse in the short term, Hartnett believes the market is entering a phase of "New World Order = New World Bull Market." Trump is pushing for global fiscal expansion, succeeding Biden's approach.

In this context, Hartnett recommends going long on international equities, as US exceptionalist positioning is rotating towards global rebalancing. Data shows that US equity funds saw inflows of $1.6 trillion in the 2020s, while global funds saw inflows of only $0.4 trillion, and this imbalance is expected to correct.

China is Hartnett's most favored market. He believes that the end of deflation in China will be a catalyst for the bull markets in Japan and Europe.

From a geopolitical perspective, the Tehran Stock Exchange has risen 65% since last August, while the Saudi and Dubai markets have remained stable, indicating that a revolution is unlikely in the region. This is good news for the market, as Iran accounts for 5% of global oil supply and 12% of oil reserves.

2. The gold bull market is far from over.

Hartnett emphasized that the new world order not only spurred a stock market bull market, but also a gold bull market.

Although gold, especially silver, is overbought in the short term—silver prices are 104% above their 200-day moving average, the most overbought level since 1980—the long-term upward trend for gold still holds true.

Gold was the best-performing asset of the 2020s, driven by factors including war, populism, the end of globalization, fiscal overexpansion, and debt devaluation.

The Federal Reserve and the Trump administration expect to increase quantitative easing liquidity by $600 billion in 2026 through the purchase of Treasury bonds and mortgage-backed securities.

Over the past four years, gold has outperformed bonds and U.S. stocks, and this trend shows no signs of reversing. While overbought bull markets always see strong pullbacks, a higher allocation to gold can still be considered reasonable.

Currently, only 0.6% of high-net-worth clients at Bank of America allocate to gold. Considering that the average increase during the four gold bull markets of the past century was approximately 300%, the price of gold is expected to break through $6,000.

3. Small-cap stocks and assets related to economic recovery will benefit.

Besides gold, other assets also benefited from the new world bull market.

Hartnett argues that interest rate, tax, and tariff cuts, along with "put option protection" provided by the Federal Reserve, the Trump administration, and Generation Z, are the reasons why the market rotated to "devaluation" trades (such as gold and the Nikkei index) and "liquidity" trades (such as space and robotics) after the Fed's rate cut on October 29 and Trump's election victory on November 4.

Hartnett recommends going long on "economic recovery" related assets, including mid-cap, small-cap, homebuilders, retail, and transportation sectors, while shorting large-cap technology stocks until the following occurs:

First, the US unemployment rate has risen to 5%. This is likely driven by cost-cutting by businesses, the adoption of artificial intelligence, and the failure of immigration restrictions to stem the rise in unemployment. It's worth noting that the youth unemployment rate has risen from 4.5% to 8%, while Canada's unemployment rate has still risen from 4.8% to 6.8% over the past three years, despite a significant decrease in immigration. If tax cuts are channeled into savings rather than consumption, it will be detrimental to cyclical sectors.

Secondly, Trump's policies have failed to lower the cost of living through large-scale intervention. Main Street interest rates remain high, and unless energy, insurance, healthcare, and artificial intelligence-driven electricity prices decline, Trump's low approval ratings will be difficult to improve. Currently, Trump's overall approval rating is 42%, his economic policy approval rating is 41%, and his inflation policy approval rating is only 36%.

Historically, Nixon's move to freeze prices and wages in August 1971 to improve the cost of living did work—his approval rating rose from 49% in August 1971 to 62% when he was re-elected in November 1972.

However, if Trump's approval rating fails to improve by the end of the first quarter, the risk of a midterm election will increase, making it more difficult for investors to continue going long on "Trump boom" cyclical assets.

4. Currency appreciation in East Asia poses the greatest risk.

Hartnett points out that the current market consensus for the first quarter is extremely bullish, while the biggest risk comes from the rapid appreciation of the yen, won, and New Taiwan dollar. The yen is currently trading near 160, and its exchange rate against the yuan is at its weakest level since 1992.

The rapid appreciation of these currencies may be triggered by factors such as the Bank of Japan raising interest rates, US quantitative easing, Sino-Japanese geopolitical tensions, or hedging mishaps.

If this happens, it will trigger a global liquidity crunch, as capital flowing into the US, Europe, and emerging markets from Asian countries seeking to recoup their $1.2 trillion current account surplus will reverse.

Hartnett's warning signal is a risk-averse combination of "rising yen and rising MOVE index." Investors need to pay close attention to this indicator to determine when to exit the market.