BofA Hartnett: Currency devaluation trade is far from over, gold may challenge $6,000 next spring

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Michael Hartnett, Chief Investment Strategist at Bank of America, stated that the long-term outlook for currency depreciation trades remains positive. He expects, based on historical bull market performance, that gold prices could approach $6,000 in the spring of next year.

In last week’s report, Hartnett pointed out that the “overheated” precious metals market underwent a correction—gold failed to break through $4,000, and silver was under pressure around $50—mainly due to short covering in the dollar trade. He believes this correction has created a better entry opportunity for the next phase of rally.

The strategist emphasized that expectations of changes in Fed policy, government stimulus, and a potential gold revaluation (similar to 1934 and 1973) will all support currency depreciation trades.

Based on historical data from the last four bull markets, Hartnett calculated that gold’s average increase was about 300%, lasting 43 months. By this estimate, gold prices could reach a peak of $6,000 next spring, which would require investors to increase their purchases by 28%.

Bank of America data shows that the proportion of gold in institutional and private client portfolios is still quite low—only 2.3% and 0.5%, respectively—indicating that the market is not crowded with structurally long gold positions.

Insufficient Institutional Allocation, Ample Upside Potential

Although gold prices have surged recently, institutional investors' allocation to gold remains low. According to Bank of America, gold accounts for only 0.5% of private client asset allocation and 2.3% of institutional client portfolios.

This level of allocation shows that few investors are structurally long on gold. The relatively low holding ratio provides ample room for future price appreciation and reduces the risk of a sharp price drop due to mass selling.

Hartnett believes that the current under-allocation contrasts sharply with gold’s long-term investment value and offers potential opportunities for investors who position themselves early.

Policy Expectations and Historical Revaluation Support the Long-Term Trend

Factors driving gold’s long-term uptrend include early positioning for the new Fed chair, the implementation of bubble prosperity policies, and the upcoming gold revaluation. Hartnett specifically mentioned historical precedents for gold revaluation in 1934 and 1973.

Policy measures such as the Argentina bailout plan are seen as typical examples of “bubble prosperity policies,” which tend to push up inflation expectations and thus support demand for inflation-hedging assets like gold.

The logic of currency depreciation trades is based on the idea that central banks worldwide, in order to stimulate economic growth, adopt loose monetary policies, which may ultimately lead to a decline in the purchasing power of fiat currencies and make physical assets like gold more attractive.

Commodities Market Restructuring Imminent

Hartnett noted significant changes in the commodities market. In June 2022, 15 barrels of oil could buy one ounce of gold; now it takes 61 barrels. This combination of a plunge in oil prices and a surge in gold prices is historically unusual.

Looking ahead, Hartnett expects oil prices could further drop to $50 per barrel, which he believes would be the biggest positive surprise of Q4. He believes that, with Trump’s Gaza peace deal and increased OPEC supply, oil prices will be driven down, benefiting inflation control and consumers, as well as supporting electricity demand for AI development.

The strategist also recommends tactically going long the US dollar and zero-coupon bonds as effective hedges against the contagion risk from subprime consumers.

In addition, Bank of America expects both gold and silver to continue rising next year, raising the 2026 gold price forecast to $5,000 per ounce with an average price of $4,400, and for silver to $65 per ounce with an average price of $56.25.

Risk Warning and DisclaimerThe market involves risk; investment must be done cautiously. This article does not constitute individual investment advice and does not consider any user's specific investment objectives, financial situation, or needs. Users should consider whether any thoughts, views, or conclusions in this article suit their particular circumstances. Investment decisions made based on this article are at their own risk. ```