Gold hits $6,000, Yen appreciation hints at global risks—Bank of America reveals investment opportunities and hidden dangers in the new order

U.S. Bank Chief Investment Strategist Hartnett recently expressed his latest views, believing that the global fiscal expansion promoted by the Trump administration is shaping a “New Global Order.” This pattern will not only trigger a stock bull market but also drive continued gains in safe-haven assets including gold. Meanwhile, the appreciation risks of East Asian currencies such as the yen and won are emerging as a “black swan” threat to the global liquidity environment.

Trump’s Fiscal Expansion Triggers Global Asset Rotation

Under this “New Global Order” framework, the global capital allocation landscape is undergoing significant changes. Hartnett pointed out that over the past four years, U.S. stock funds attracted $1.6 trillion in inflows, while global funds only received $0.4 trillion. This extreme imbalance is expected to be corrected.

The overvaluation of American exceptionalism is rebalancing and rotating into other markets worldwide. In this context, Hartnett recommends investors go long on international stocks, especially in China, Japan, and Europe. His core logic is that the end of China’s deflation will serve as an important catalyst for the recovery of Japanese and European stock markets.

From a geopolitical perspective, market risks are gradually easing. The Tehran Stock Exchange has risen 65% since August last year, while markets in Saudi Arabia and Dubai remain stable, indicating no revolutionary turmoil in the Middle East, which is positive for global oil supply and market sentiment. Iran accounts for 5% of global oil supply and 12% of reserves, so relative geopolitical stability supports the commodities market.

Long-term Bullish Case for Gold Is Complete, Potential to Break $6,000

Despite short-term signs of overbought conditions in gold and silver—silver prices are 104% above the 200-day moving average, reaching the highest overbought level since 1980—the long-term bullish logic for gold remains valid, which investors should not overlook.

Gold has been the best-performing asset since 2020. Factors supporting its continued rise include global geopolitical conflicts, rising populism, the end of globalization, excessive fiscal expansion by various countries, and debt devaluation pressures. Over the past four years, gold’s returns have significantly outperformed bonds and U.S. stocks, with no signs of reversal.

The Federal Reserve and the Trump administration are expected to increase $600 billion in quantitative easing liquidity by 2026, through purchases of government bonds and mortgage-backed securities, injecting market funds. This policy environment provides lasting support for gold.

While bull markets in overbought conditions often see strong technical corrections, this does not change the strategic value of allocation. Currently, high-net-worth U.S. bank clients have only 0.6% of their portfolios in gold, a very low figure. Historically, the average increase during four gold bull markets over the past century is about 300%. Based on this, surpassing the $6,000 target for gold prices is not out of reach.

Small Caps and Cyclical Sectors Present Opportunities for Deployment

Policies reducing interest rates, taxes, and tariffs, combined with “put options” protection provided by the Federal Reserve, Trump administration, and young investors, are driving a dual rotation in the market—toward “devaluation” trades and “liquidity” trades.

In this environment, assets related to economic recovery will benefit significantly. Hartnett suggests going long on mid-cap and small-cap stocks, as well as sectors closely tied to the economic cycle, including homebuilders, retail, and transportation. These sectors are poised for performance release under cost-cutting policies. Meanwhile, before a correction window appears, caution should be exercised with large tech stocks.

Falling interest rates mean lower corporate financing costs, benefiting small and medium-sized enterprises first. Tax cuts increase after-tax profits for small and medium businesses, and tariff adjustments may reshape competitive advantages in manufacturing. The housing sector will see demand release due to lower financing costs, while retail and transportation will benefit from a rebound in consumer activity.

Yen Appreciation Is the Biggest Hidden Risk, Real-time Monitoring Needed

Currently, market consensus in Q1 is extremely bullish, but Hartnett warns that the greatest risk comes from rapid appreciation of the yen, won, and New Taiwan dollar. The yen is trading near 160, hitting its lowest level against the RMB since 1992. This indicates the yen is severely undervalued, and a sharp appreciation could trigger a strong reverse shock.

The rapid appreciation of these East Asian currencies could be triggered by several factors: unexpected rate hikes by the Bank of Japan, adjustments in U.S. quantitative easing policies, changes in Japan-China geopolitical tensions, or large-scale hedge fund unwinding. Once triggered, the consequences could be severe.

Asian countries hold $1.2 trillion in current account surpluses, which have long flowed into the U.S., Europe, and emerging markets. If East Asian currencies appreciate rapidly, these capital inflows could reverse, leading to a significant tightening of global liquidity. This liquidity squeeze would not only depress risk asset prices but could also cause cross-border financing chains to break.

Hartnett emphasizes a key monitoring signal—the combination of “yen rising” and “MOVE index rising.” The MOVE index measures bond market volatility expectations, and this combination often signals rising risk aversion. Investors should closely track this indicator to determine when to actively hedge risks or adjust positions.

Prosperity Cycle Requires Two Key Conditions to Continue

Whether this “New Order” investment opportunity can persist depends on two critical conditions being met.

First, the U.S. unemployment rate must remain low. The most concerning signal is that youth unemployment has risen from 4.5% to 8%. If companies accelerate layoffs due to cost pressures, AI-driven job losses accelerate, or immigration restrictions fail to prevent unemployment from rising, the rate could quickly breach 5%. This would directly weaken consumer spending. If government tax cuts are saved rather than spent, cyclical sectors will suffer significantly.

Second, Trump’s policies must genuinely reduce the living costs for ordinary people. Currently, Trump’s overall approval rating is only 42%, with 41% supporting economic policies, and a worrying 36% supporting inflation policies. This indicates strong public dissatisfaction with cost pressures. Main street interest rates remain high; if energy, insurance, healthcare, and AI-driven electricity prices do not decline, Trump’s low approval rating will be hard to improve.

History offers some reference: in August 1971, Nixon implemented price and wage controls, after which his approval rating rose from 49% to 62% at his re-election in November 1972, demonstrating that effective cost control policies can change political tides. But if Trump cannot improve approval ratings by the end of Q1, political risks in mid-term elections will rise, and market enthusiasm for “Trump prosperity” cyclical assets will decline sharply.

Overall, this “New Global Order” indeed presents opportunities for gold, small caps, and cyclical sectors, and surpassing $6,000 in gold prices is not impossible. However, investors must remain vigilant about the systemic risk of yen appreciation and closely monitor unemployment and living costs—two key indicators for the sustainability of prosperity.