Usually rocky in the month of October for financial markets, a strong trending trend is upending traditional ideas about safe-haven assets. The debasement trade continued to pick up steam, as investors hedge against the traditional risk.
The debasement trade directly reflects the focus on extreme government spending and the specter of inflation and likely to be a long-term erosion of fiat currency value. Consequently, tangible assets such as gold and its new digital counterparts such as bitcoin are now having their highest levels of volume flowing into them causing new record prices.
Grasping the Fundamental Force: What is the Debasement Trade Status
Essentially, the debasement trade is a hedge against the dollar losing purchasing power. Higher prices persist: Investors are concerned that enormous public borrowing and loose monetary policy will erode currency in the long run.
Such fears are driving the debasement trade we are currently seeing, as capital flows into assets considered to be outside the system. This debasement trade is more than just a zeitgeist, but a shift in the way institutional and retail investors are hedging their portfolios against a new economic paradigm.
The succinct version came from Christian Magoon of Amplify ETFs, who told CNBC, “Gold is being helped by the whole debasement trade. That line puts just how central this theme now is to market chatter. The data backs this up, with U.S. gross federal debt at lunatic levels and the U.S. dollar index trading down dramatically on the year, the basics of the debasement trade are compelling.
Gold: The Traditional Cornerstone of the Debasement Trade
While Gold is THE most classic haven in times of uncertainty, we are turning up the volume on that particular debasement trade. As investors gravitated towards its time tested store of value, the precious metal broke through the 4000 dollar mark to establish an all time high. Gold’s run this year has also shown itself unique as the momentum pushing the debasement trade has kept the yellow metal ahead of all major U.S. equity indexes year-to-date. As the preferred vehicles for exposure to this staple of the debasement trade, SPDR Gold Trust (GLD) and iShares Gold Trust (IAU) are continuing to enjoy robust interest.
Bitcoin, the Digital Motor of the Debasement Grab
Now add bitcoin to this rally, the new gold in a different form, the digital anchor to the centuries old debasement trade, You are being used as a digital currency alternative to historical debasement based fiat, with bitcoin as a scarce, non-sovereign asset. Its recent break to a fresh all-time high above 126, 000 reveals the potency of its role in the current debasement trade.
In the context of the broader debasement trade theme, the continued success of instruments such as the iShares Bitcoin Trust (IBIT)—which took the crown as best-performing US equity ETF in weekly flows last week—suggests increasing mainstream acceptance of this digital asset.
Part of a Wider Change in Turn of Portfolio
This is not just the rise of a pair of assets, it is the debasement trade — one that reflects a seismic shift in the allocation of portfolios. Jay Jacobs, BlackRock’s head of equity ETFs, said he finds clients on the move toward “global monetary alternatives.
” This approach, the most direct expression of the debasement trade is to target things that “trade outside the system.” This is the case with not only gold and bitcoin, but with silver, which has experienced a dramatic rally this year. Hence, the debasement trade is a multi-asset driven trade questing for diversifying away from inflation and as a hedge against it.
This strategy was reaffirmed by billionaire investor Paul Tudor Jones, who advised holding gold, crypto and a few stocks to weather the “debasing currency trade” in today’s environment.
The Next Step In The Debasement Trade
Will the debasement trade continue? And analysts say that momentum should hold as long as geopolitical uncertainty and inflation fears remain. The debasement trade is climbing a textbook “wall of worry,” but the fundamentals—giant debts, a weakening dollar and a breakdown of trust in traditional finance—are deep-rooted and strong. With the continued evolution of the debasement trade, investors are more heavily seeking safety in locations other than where stocks and bonds typically reside — in the increasingly stale investing landscape of an increasingly uncertain world.
