Gold an ideal hedge against AI bubble: BofA

Against an AI-led market rally that has stretched US equities to elevated levels, gold has emerged as one of the most compelling hedges against a potential correction, analysts at Bank of America said.

In a note, strategists led by Michael Hartnett pointed to the current forward earnings multiple of the S&P 500 (23 times) — which is well above its two-decade average of 16 — and the even higher 31 times multiple ascribed to the so-called “Magnificent Seven” tech megacaps.

“With AI equity leadership ain’t budging for the time being and we like gold … as best boom/bubble hedges,” the BofA team said.

Why gold?

The BofA strategists argue that a sustained economic upswing, falling US interest rates and expansive fiscal policy — including expectations of policy support from President Donald Trump — all pose a risk of higher inflation, leading to asset overvaluation. Gold, in their view, offers a hedge against those dynamics.

They noted that although the precious metal had just surged to all-time highs, it remains “structurally under-owned” — comprising only about 0.4 % of private client assets and 2.4 % of institutional portfolios. In fact, global gold funds have seen record outflows of $7.5 billion in recent weeks, it said, citing EPFR data.

With the underlying macroeconomic factors in play, the bank recently upgraded its 2026 outlook for gold prices to $5,000/oz., a near 20% upside on current levels. For the remainder of 2025, it sees gold continuing its upward trajectory to take the year’s average price up to $3,800/oz.

As of Friday morning, gold was trading around $4,000/oz., having pulled back sharply from its record high of $4,381/oz. from less than two weeks ago. Year to date, it has risen by nearly 55%.

AI hype

In its note, BofA stresses that if the current AI hype fades, valuations compress and investor flows reverse, gold could outperform equities. In that event, the metal would serve not only as an inflation hedge, but also as a hedge against over-concentration in growth assets.

The bank had previously endorsed a “60:20:20” portfolio (60% equities, 20% bonds and 20% gold), which it believes “would have delivered higher returns since 2020.”

Another potential hedge against the AI boom are Chinese stocks, which like bullion has outperformed the S&P 500 sharply this year.

Hartnett and his team had correctly bet on international stocks when Trump was first elected.

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