According to strategists from Bank of America, investors are increasingly turning to gold to hedge against inflation and populism risks as the U.S. elections approach. Led by Michael Hartnett, the team reported that gold recently hit an all-time high, with gold ETFs seeing a $3.1 billion inflow, marking the largest weekly inflow since July 2020.
Strategists also noted the continuous popularity of trades like buying artificial intelligence stocks ahead of the November 5 elections. This week, the yield on the U.S. 10-year Treasury briefly rose above 4.2%, the highest since July, while shares of U.S. chipmaker NVIDIA (NVDA, Financial) also hit a record high.
However, they caution that weak wage data could signal a potential recession, prompting investors to shift from stocks to bonds. Additionally, any election-induced inflation surge might lead the Federal Reserve to consider interest rate hikes, potentially impacting tech stock trades.
The move to gold forms part of a broader strategy by investors to mitigate the risk of Trump winning the election. The U.S. dollar has also rebounded as investors bet a Republican victory could lead to inflation, higher budget deficits, and possible trade wars.
Polls in swing states indicate a tight race between Trump and Harris, with betting odds currently favoring Trump. Bank of America strategists cited CFTC data showing hedge funds' optimism toward the dollar at its highest since June 2021.
Emerging markets are facing challenges, with emerging market stocks experiencing their largest outflow since April 2020, totaling $7.2 billion. European stocks also saw continuous outflows, with $8.5 billion withdrawn over four weeks, reflecting a cautious global stance towards non-U.S. markets. In contrast, U.S. bond funds received $4 billion in inflows over the past three weeks, indicating steady demand for safe-haven assets amid increasing uncertainty.
