Via the Wall Street Journal (gated):
A powerful new trend is sweeping Wall Street as investors shift heavily into gold, bitcoin, and other alternatives to the U.S. dollar — a move traders have dubbed the “debasement trade.”
Driven by concern over America’s swelling deficits, fiscal policy uncertainty, and the government shutdown, investors are seeking protection from the potential erosion of major currencies. Gold has surged to record highs, with benchmark futures topping $4,000 per ounce for the first time after Fed Chair Jerome Powell signaled in August that rate cuts were coming despite sticky inflation and a strong labor market.
This year’s rally — up 52% so far — is unusual because it hasn’t followed a financial crisis. Instead, it’s unfolding amid optimism around AI-driven equity gains and President Trump’s promises of further tax cuts. The parallel buying of both gold and risk assets underscores a divided market: one side betting on an extended boom, the other hedging against fiscal recklessness and long-term inflation risks.
Vanguard’s chief economist Joe Davis describes it as a “tug of war” — between investors chasing growth through AI-fueled stocks and those bracing for the consequences of structural U.S. deficits. The rush into non-dollar assets, he and others warn, signals growing discomfort with the foundations of the global currency system.
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Earlier:
