Gold has soared some 60 per cent to record highs this year, prompting talk of a great debasement trade – the increasingly popular idea that investors are fleeing paper money as governments drown in debt and fiscal discipline evaporates.
Billionaire hedge fund manager Ken Griffin warns of investors “de-dollarising” amid sovereign risk. Another hedge fund luminary, Bridgewater founder Ray Dalio, calls gold the ultimate “storehold of wealth” and urges shifting to “harder currencies”.
The world’s debt pile and the weaponisation of the dollar give the thesis some sparkle, but the story arguably dulls on inspection.
Sceptics suggest that if investors truly feared debasement, long-term bond yields would be rising and the dollar would be tumbling. Instead, while the dollar fell hard in early 2025, it has been pretty steady since spring, while 30-year treasury yields have barely budged over the last two years. Inflation expectations are anchored, and international buyers continue to snap up US debt.
So what is driving gold’s rise? Market prices rise when there is more buying than selling, and there is rarely a single reason behind that imbalance. Debasement fears may be a factor, but so is politics. Emerging-market central banks have been diversifying away from the dollar since Russia’s reserves were frozen in 2022.
Then there is momentum, and investors’ tendency to chase whatever is rising. Gold has become a momentum trade, says TS Lombard’s Dario Perkins, who bluntly describes the debasement story as “another bullshit narrative”. In an illiquid market, says Perkins, “it only takes a few tinfoil hat nutters to drive the price up”.