Last Friday, global financial markets experienced an epic-scale tremor: gold and silver prices plummeted off a cliff, US stocks nosedived, and the US dollar staged a strong rebound. This sell-off continued into this Monday, with spot gold approaching $4,400 and spot silver falling below $72 per ounce, nearly erasing its year-to-date gains and plunging over 15% intraday. Rumors that former Fed "super hawk" Kevin Warsh might succeed Powell further intensified market panic.
However, at a time of extreme market instability, Michael Hartnett, Chief Investment Strategist at Bank of America, remained remarkably composed. He clearly stated that despite the roller-coaster volatility, the core macro narrative of "currency debasement" has not changed.
For investors, this means short-term fluctuations do not alter the long-term thesis. The macro drivers pushing gold and physical assets higher remain solid. Unless a "mega event" more disruptive than the current macro narrative occurs, this bull market driven by currency debasement will not easily conclude.
Despite the dollar's rebound last Friday, Hartnett reminded investors to focus on the larger trend: the US dollar has actually fallen 12% since Trump's inauguration.
This weakness is not accidental but a result of policy direction. Hartnett pointed out that a weak dollar is a key measure to revitalize manufacturing in swing states like Pennsylvania, Michigan, and Wisconsin in the "Rust Belt." This is not just an economic calculation but a necessity for Trump's political survival. Data clearly shows a high negative correlation between Trump's approval ratings and the dollar's performance during his term—the weaker the dollar, the more stable the votes.
From a historical perspective, the average decline in dollar bear markets since 1970 has been as high as 30%. Against this macro backdrop, gold and emerging market equities are typically the best-performing asset classes. As long as "currency debasement" continues to be used as a policy tool, physical assets will receive long-term downside protection and upside support.
Regarding investment strategy, Hartnett emphasized that the traditional "60/40" stock-bond portfolio is no longer suitable for the current environment. It should be replaced by the "Permanent Portfolio"—allocating 25% each to stocks, bonds, gold, and cash.
Data proves the superiority of this strategy: the portfolio's 10-year annualized return reached 8.7%, its best performance since 1992. More strikingly, the portfolio recorded a 23% gain in 2025, its strongest annual performance since 1979.
This data powerfully illustrates that in an era of currency debasement and inflation volatility, including gold and cash in core asset allocation is crucial.
Of course, the market is not without concerns. Hartnett acknowledged that recent gold prices do show some "bubble-like" characteristics, and the market faces liquidity deleveraging risks in the first half of the year, which could flush out some "greedy" speculative capital.
But he believes the current gold price level implies negative US real interest rates, which is consistent with market expectations for excess liquidity, dollar depreciation, and pre-election US economic prosperity.
Hartnett warned that the current ownership structure of US stocks and bonds harbors significant fragility: non-US investors hold 64% of US equities, 55% of global corporate bonds, and 50% of global government bonds. Under this highly concentrated structure, if non-US investors reduce their positions by just 5%, it would trigger $1.5 trillion in capital outflows. Considering the US faces a $1.4 trillion current account deficit and a $1.7 trillion budget deficit, capital flight of this magnitude would be disastrous.
In short, barring a major macro event that can overturn the existing liquidity logic, mere technical corrections are insufficient to change the bull market direction for gold.
Looking ahead, this strategist known for his contrarian thinking offered a new direction.
While he noted in 2020 that going long gold was the "pain trade" (referring to a correct trade most are afraid to make) at the time, he believes that by 2026, the true contrarian trade might become "going long bonds." However, against the backdrop of saturated global debt, whether this contrarian thinking will work remains to be seen.
Regarding specific asset allocation, Hartnett reiterated the "BIG + MID" combination he has frequently emphasized in recent reports. As the 2020s reach their midpoint, he advises investors to focus on the following asset classes to outperform in the new macro paradigm:
International stocks Gold Mid-cap stocks
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