BofA’s Hartnett sees $6,000 gold next spring amid rising ‘debasement’ trade

Bank of America reported that money market funds continue to attract the largest share of investment flows, reaching $7.4 trillion, with cash funds drawing $72.9 billion last week, while gold inflows slowed and crypto saw its largest inflow in 12 weeks. BofA strategists, led by Michael Hartnett, interpret record bank loan inflows as a signal of peaking rate optimism and advocate for a "debasement trade" in gold, projecting a potential rise to $6,000 by next spring. Sectorally, Materials funds saw historic inflows, Healthcare funds had their largest inflow since April, and Financials experienced their first outflow in seven weeks, alongside continued inflows into U.S. equities contrasting with outflows from European and Japanese markets.

Analysis

Money market funds continue to dominate investment flows, attracting $72.9 billion last week and pushing total assets to $7.4 trillion, signaling persistent risk aversion among investors. Bonds also saw significant inflows of $25.6 billion, while gold recorded its smallest inflow in three weeks at $2.1 billion, despite a broader "debasement trade" thesis.

Bank of America strategists, led by Michael Hartnett, interpret the largest bank loan inflow in 13 weeks ($1.4 billion) as a potential peak in rate optimism. Hartnett advocates for a "debasement trade" in gold, citing factors like anticipated Federal Reserve leadership changes and historical revaluations, projecting a potential rise to $6,000 by spring next year based on historical bull market averages.

Sectorally, Materials funds experienced historic weekly inflows of $7.6 billion, contributing to a record $79 billion year-to-date. Healthcare funds saw their largest inflow since April 2023 at $1.5 billion, contrasting with Financials which recorded their first outflow in seven weeks at $200 million.

Regionally, U.S. stocks maintained their inflow streak with $14.2 billion, while European stocks saw their first outflow in three weeks ($300 million) and Japanese stocks recorded their first outflow after six weeks ($3 billion). Emerging market stocks continued their positive trend with an eighth consecutive week of inflows at $500 million.

Key Decisions for Investors

• Investors should monitor the sustained high inflows into money market funds and bonds as a key indicator of prevailing risk-off sentiment and its potential impact on equity valuations.
• Evaluate the long-term "debasement trade" thesis for gold, considering the projected $6,000 target by spring next year, despite recent slower inflows, as a potential hedge against currency debasement.
• Consider rebalancing portfolios based on significant sectoral and regional flow divergences, particularly the strong performance in Materials and the contrasting trends in developed versus emerging equity markets.