Gold inflows hit $7.3B as Hartnett flags two risk-off triggers

Bank of America Chief Investment Officer Michael Hartnett warned that extreme bullish positioning — with the firm's Bull & Bear Indicator at 9.7, near its all-time high — has set the stage for a potential reversal as two geopolitical and political triggers approach.

"Contrarian investors are preparing for a sudden shift in sentiment and stand ready to pivot their portfolios into risk-off mode," Hartnett wrote in the latest Flow Show report.

The report showed gold attracted $7.3 billion in weekly inflows while cryptocurrencies drew $3.2 billion, both the largest since October 2025. US equities saw $4.4 billion in outflows, the first in five weeks, and high-yield bonds recorded $700 million in withdrawals.

The two triggers Hartnett identified are a potential de-escalation of US-Iran tensions and the outcome of the US midterm elections. If Republicans lose Senate seats or the Texas governorship, it would signal voters prioritize affordability over tax cuts, undermining the policy foundation of the current market consensus.

Safe-haven flows surge as investors hedge fiat depreciation

The defensive rotation extends beyond gold and crypto. Investment-grade bonds attracted $10.6 billion, their largest inflow in five weeks, while European equities received $1.2 billion, the strongest weekly total since February. By contrast, Chinese equities experienced $14.5 billion of withdrawals, their biggest outflow since May, and technology funds recorded $1.2 billion in outflows.

Hartnett's "Anything But Dollar" investment theme underpins the flows, with the strategist calling gold "still the best hedge against dollar debasement, bond collapse, asset inflation." The report noted that all seven presidential elections held since January 2025 have resulted in victories for right-wing or right-leaning candidates, supporting emerging-market assets.

The Iran war, now in its sixth month since the US and Israel launched strikes on Feb. 28, has kept Brent crude elevated at about $88 per barrel, up roughly 22 percent from pre-war levels. The Strait of Hormuz remains largely closed to commercial traffic, sustaining energy price pressure that feeds into the defensive positioning Hartnett describes.

Treasury yields above 4.7% threaten long-duration trades

The bond market is vying for dominance in global asset pricing. Hartnett said the underperformance of AI spenders (MAGS) and AI builders (SOX) relative to AI adopters will only end when the 30-year Treasury yield falls below 5 percent — a target that appears difficult to achieve in the near term.

Fed Chair Kevin Walsh's Jackson Hole speech attempted to balance inflation concerns with yield curve dynamics. Although the 2-year to 30-year curve flattened significantly following the speech and the dollar rebounded, Treasury yields breached the key intervention threshold of 4.7 percent. Hartnett argued that the policy combination of Treasury Secretary Scott Bessent and Walsh must prevent further rises in US Treasury yields, or long-duration trades will face significant pressure.

Global central banks are quietly shifting course. Over the past three months, they implemented 13 rate hikes, exceeding the 12 rate cuts. Bank of America expects the situation to evolve to 17 hikes versus 4 cuts by year-end. Hartnett believes central bank hikes help complement the Treasury's bond and foreign exchange interventions to suppress long-end yields — crucial for financing the surge in AI capital expenditure and preventing consumers from increasing precautionary savings over the $40 trillion national debt.

The Treasury's bond buyback program is scheduled to end Nov. 4, exactly one day after the US midterm elections. Trump's economic approval rating stands at 35 percent, with his inflation approval at 28 percent, both declining again. Hartnett noted that a rapid resolution to the US-Iran conflict is the easiest path to boosting approval ratings, which is the core logic behind contrarian investors closely monitoring the situation in Iran.

Hartnett cautioned that "greed is always more difficult to reverse than fear," adding that ending a bull market typically requires a combination of excessive investor positioning, overly optimistic profit expectations, and tighter policy conditions. The S&P 500 has continued to grind higher since triggering a sell signal on May 26, but extreme positioning has laid the groundwork for a potential pullback.

This article is for informational purposes only and does not constitute investment advice.