Bank of America's Hartnett says bets on gold are rising before US election

Investors are continuing to load up on gold ahead of the US election as a hedge against inflation and populism, according to strategists at Bank of America Corp.

The precious metal hit a record high on Wednesday and gold funds recorded their biggest weekly inflow since July 2020, a team led by Michael Hartnett wrote.

Other recent popular trades, such as selling bonds and buying artificial intelligence stocks, are holding up ahead of the November 5 election, the strategists said. The yield on US 10-year government bonds briefly breached 4.2% this week, the highest level since July, while shares of US chip company Nvidia Corp. hit an all-time high.

The gold trade is part of a wider investor strategy to position portfolios against a possible win for Donald Trump in the election. The US dollar has also rallied on bets a win for the Republican candidate would trigger a rebound in inflation, a rising budget deficit and a potential trade war with China.

Hedge funds haven’t been this bullish on the dollar since June 2021, the BofA strategists said, citing CFTC data. The BofA team also noted that investors are placing bets against China despite recent stimulus measures.

Low payrolls data pointing to a recession could dent investor confidence about some of these trades and trigger a rotation from stocks to bonds, the strategists said. The impact of the presidential election on inflation could also motivate the Federal Reserve to reverse gear and raise rates instead of cutting them, they said.

The contest between Trump and Kamala Harris is currently very tight according to polls in swing states, while betting odds currently favor the Republican candidate.