Gold is heading for its biggest monthly gain since 1999, up more than 13% in August, as the US Treasury's plan to double long-term bond purchases weakens the dollar. Traders say the move has revived the "debasement trade," pushing investors toward assets seen as a hedge against a weaker greenback.
Gold gains on dollar weakness
Gold gained 1.5% on Friday to about $4,585 a troy ounce and is up more than 13% this month. That puts the metal on track for its biggest monthly gain since 1999.
The rally follows the US Treasury's announcement on Wednesday that it would "at least double" its purchases of long-term government debt. The move has slightly pushed down the yield on 30-year Treasury bonds but has also weakened the dollar amid concerns over the currency's purchasing power.
Debasement trade returns
A commodities trader said Bessent's move has "resulted in a strong boost to debasement-trade assets, particularly gold and bitcoin". In the debasement trade, traders buy assets they expect will protect them from a weakening of the dollar and other fiat currencies.
The US dollar fell sharply after Wednesday's announcement and is now down around 1% against a basket of currencies since Tuesday. Mohit Kumar, chief European economist at Jefferies, pointed to gold's performance since Bessent's announcement as support for the weaker-dollar view.
Iran war had interrupted the trend
That trade took a significant hit after the US launched its war on Iran earlier this year, which triggered a rise in inflation and pushed up short-term US Treasury yields, helping to strengthen the dollar. Now, however, a lowering of expectations for interest rate rises combined with Bessent's announcement has revived the theme.
Chris Turner, head of global markets research at ING, said the intervention should be seen as an attempt to stabilise the bond market and address the risk of a sell-off in longer-dated US debt, rather than a sign of eroding policy credibility.
Source: Financial Times
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