"Go long Detroit"! Bank of America’s Hartnett: Looking at history, the best strategy to succeed gold

Bank of America has sent a clear signal: although the “Bull & Bear Indicator” is in an extremely bullish zone (9.2), issuing a tactical sell signal, strategically investors should not retreat, but instead *rotate*. The core logic is “go long Detroit, short Davos,” *that is, shift from crowded large-cap and tech stocks to small/mid-caps and industrials*. According to Wind Seeking Trading Desk, on January 22, Bank of America’s ace strategist Michael Hartnett pointed out in the latest research report that the winners of the first half of the 2020s (U.S. tech stocks, gold) are now giving way to the winners of the second half (emerging markets, small/mid-caps). With U.S. Treasury yields rising and a “great bear market” in bonds, funds are searching for “any asset other than bonds.” For investors, *this means paying attention to previously severely undervalued asset classes, especially small/mid-cap businesses benefiting from government intervention in cost controls and reindustrialization.* ## Capital flow monitoring: U.S. Treasury yields surge During the week ending January 22, 2026, global market capital flows showed significant volatility: > - **Bond Market:** Despite rising yields, saw an inflow of $15.4 billion. > - **Gold:** Continued to be sought after, with an inflow of $4.9 billion. > - **U.S. Equities:** Saw an outflow of $16.8 billion, the first in two weeks. The current “zeitgeist” in the market is that although the selection of the Federal Reserve Chairman typically brings yield fluctuations (since 1970, yields have always risen within three months after seven nominations), the market believes that the new chair in 2026 will not let the 30-year Treasury yield break the “safe haven” level of 5%, as QE (quantitative easing) and YCC (yield curve control) will intervene to “repair” prices. ## Topic for the second half of the 2020s: ABB (Anything But Bonds) Bank of America points out that the bear market in bonds is extremely brutal. Since the 2020s, the price of 30-year U.S. Treasuries has dropped 50% from its peak, Japanese government bonds (JGB) have dropped 45%. > - **First Half Playbook:** The bond bear market gave rise to a bull market in U.S. Tech stocks (the “Magnificent 7”), European/Japanese bank stocks, and gold. > - **Second Half Playbook:** BofA believes that *emerging markets (EM) and small/mid-cap stocks* will be the new beneficiaries of the ABB strategy. Images > - **History Rhymes:** This is similar to the 1970s, when the end of the Bretton Woods system led to dollar devaluation, gold was king at first (1971-74), then from 1975-77, *small caps replaced gold as the best asset*. BofA especially recommends GLD (gold), GNR (resources), EEM (emerging markets), MDY (mid-caps), and IJR (small-caps) as top picks for 2026. Image ## Core Strategy: “Go Long Detroit, Short Davos” Bank of America is firmly optimistic about the performance of U.S. small/mid-caps before 2027; this strategy is called “go long Detroit (representing the real economy/small businesses), short Davos (representing global elites/big corporations).” Four main pillars support this: > 1. **Extremely Divergent Positioning:** Since the 2020s, U.S. large caps have gained *$1.6 trillion* in inflows, while small caps have seen *$6.1 billion* in outflows. This significant divergence means an extreme contrarian trading opportunity. > 2. **Extremely Undervalued Prices:** Over the past century, only in 1956 and 1999 have small caps’ long-term returns relative to large caps been worse than now. > 3. **Policy Shift:** The Trump administration’s goal is to use QE/YCC to lower the “price of capital,” eliminating the tail risk of a sharp rise in bond yields. > 4. **Political Intervention (Invisible hand turns into visible fist):** The government is actively intervening in the corporate sector to control prices. In 2025 tariffs will reduce healthcare costs. In 2026, banks will be pushed to lower credit card rates, restrict private equity buying residential properties, make tech companies pay to power data centers. This compression of energy, healthcare, and credit costs actually squeezes “big business” profit margins, but benefits “Main Street” prosperity, manufacturing reshoring, and small/mid businesses. ## Global Macro: Yen Devaluation and the Rise of Emerging Markets On the macro level, Japan’s currency devaluation is triggering massive capital outflows. > - **Yen-priced Silver:** Prices have hit historic highs, surpassing the peaks of 1980, reflecting the impact of currency depreciation. Image > - **Capital Outflow:** Weak Asian currencies are fueling flows into U.S./European assets; for example, Korean retail investors have injected nearly *$100 billion* into U.S. stocks since 2019. > - **Emerging Market Bull Run:** International equities’ long-term bull market is now in its second year. Strength in commodity prices (driven by AI infrastructure) is leading to stronger EM currencies, lowering EM bond yields, which should propel EM stocks into a new relative bull run. Bank of America is particularly bullish on China, arguing its 3% weighting in the MSCI ACWI index is too low compared to the U.S.’s 64% weighting, and consumption’s share of GDP is likely to rebound from a 40% trough. ## Gold and Market Signals Against the backdrop of a new world order, currency depreciation, populism, and fiscal excess, gold remains a highly attractive hedging tool. The average gain of the four gold bull runs in the past 60 years is about 300%, implying gold prices could peak above *$6,000*. The Bull & Bear Indicator currently reads *9.2*, in the “extremely bullish” range (above 8.0 is a sell signal). This is mainly due to significant outflows from equities and emerging market ETFs, offsetting the historical low in cash levels (3.2%). This signals short-term market overheating and the need to watch for a pullback risk, but is more an opportunity for rotation than a sign to exit completely. Image Risk warning and disclaimer The market carries risk; investment should be prudent. This article does not constitute personal investment advice, nor does it take into account individual user’s specific investment objectives, financial situation, or needs. Users should consider whether any opinions, views, or conclusions herein are suitable for their particular circumstances. Investing accordingly is at your own risk. Image