Caixin October 21st news (Editor Xiaoxiang) after a strong breakthrough of $2700 last Friday, $XAU/USD (XAUUSD.CFD)$ the price continued its relentless rise to a new all-time high on Monday, reaching as high as $2732.8/ounce intraday.

Looking at the recent trends in the global financial markets, the main theme of various asset classes has gradually shifted from the 'interest rate cut trade' around the Federal Reserve in the third quarter to the increasingly heated 'Trump trade' before the US election in November.

So, besides the tense geopolitical situation in the Middle East and Russia-Ukraine, is gold's recent strength also benefiting from this?

The answer seems to be positive.

Bank of America's Chief Strategist Michael Hartnett stated in the latest fund flow report released over the weekend that based on the latest feedback from the gambling market on the odds of the US election, Trump's chances of winning are as high as 61%, while Harris is at only 39%.

Of course, Hartnett believes that this is not actually the main focus - the market may not care too much about who will win between Trump or Harris under a gridlocked Congress, but it will definitely care whether the Democrats or Republicans can sweep both houses. Currently, the risk of an election 'sweep' closely related to market trends is as high as 44%, mainly because the possibility of a 'Republican wave' (Trump winning the presidency and the Republicans winning both houses) has soared from 20% to 33%.

So, what happened the last time the Republican Party swept the general election?

History is not actually far away—it happened when Trump took office in the White House in 2016.

Hartnett reviews that the Republican sweep of the 2016 election was good for stocks, oil, and the dollar, but bad for bonds and gold.

However, Hartnett believes that there might be a reversal in the fate between gold and oil this time.

The price trends of the past week have already shown that banking stocks, small-cap stocks, and the dollar, which surged in 2016, are still leading the way. However, the performance of gold and oil is diverging from back then, which Hartnett thinks makes sense.

How does Hartnett view the market?

Let's start with the fiscal side. Hartnett states that the US government's annual budget expenditure in 2019 was only about $4.5 trillion, but has now soared to around $6.9 trillion.

At the same time, the size of the US federal government debt has surpassed the $35 trillion mark. This clearly explains why US Treasury bonds are still in a structural bear market: with neither presidential candidate having a plan or any hope to balance the budget, US bonds are unlikely to shake off the decline.

As the US quietly stimulates the economy through massive and sustained debt injections, other countries are also intensively ramping up their fiscal stimulus efforts.

Looking back at the capital trend over the past week, it is not difficult for people to notice a noteworthy highlight: a significant increase in the inflow of gold and cryptos, as investors are withdrawing funds from cash, technology, emerging markets, and other sectors.

For example, as of the week ending October 16th, the capital flow in various sectors has undergone the following changes:

Cash: Largest outflow in 12 weeks (-17.4 billion US dollars);

Gold: Largest inflow in 12 weeks (1.2 billion US dollars);

​Bonds: Largest inflow since October 2020 (23.2 billion US dollars);

Emerging Markets Stocks: Largest outflow since October 2023 (-4.2 billion US dollars);

Technology Stocks: Largest outflow since June 24th (-1.3 billion US dollars).

Returning to the main topic - the election in two weeks, Hartnett in the report specifically discusses the fate of gold and crude oil, and the possible reasons for a reversal under a new round of 'Republican dominance'.

The price of gold.

The price of gold has currently risen above $2700, significantly higher than the previous historical peaks of $2000 per ounce in 2020 and $1900 per ounce in 2011.

Hartnett believes that the bull market in gold will be driven by policies and inflation - the 2020s will be a decade of excessive fiscal stimulus in the USA and globally, as well as a decade marked by technology, trade tariffs, and protectionism.

Hartnett points out that the Federal Reserve is determined to push real interest rates down in the coming quarters. Investors need to hedge against the threats of inflation and dollar depreciation - the historical high of Bitcoin at $75,000 also serves as evidence.

The conclusion of this Chief Strategic Officer of Bank of America is: 'Gold will far exceed $3000 per ounce.'

Oil Prices

In contrast to the continuously hitting historical highs of gold, the current $70 per barrel oil price is significantly lower than previous historical peaks such as $124 per barrel in 2022 and $145 per barrel in 2008.

Hartnett believes that the weakness in oil prices is influenced by economic and geopolitical factors: Global manufacturing is expected to decline in 2024, and investors hold a relatively optimistic view on the easing of geopolitical tensions in regions like Russia-Ukraine and the Middle East in the coming quarters.

Hartnett pointed out that this means that the performance of the US market relative to the international market will be relatively weaker, as compared to Europe and Asia, which are mainly energy-importing countries, US assets are more dependent on geopolitical conflicts (with a large risk exposure in high technology and defense sectors + US energy independence).

For European and Asian markets, low oil prices are equivalent to interest rate cuts.

Editor/Somer