As US government debt cracked $US40 trillion ($56 trillion) this month for the first time, gold and bitcoin bulls have been piling back in to the so-called debasement trade, betting on the demise of the US dollar.
Bitcoin surpassed $US80,000 for the first time since May while gold jumped roughly 10 per cent in August to around $US4,436 – its strongest performance since January – despite easing at the end of last week after hawkish comments from the US Federal Reserve chairman Kevin Warsh raised the spectre of an interest rate rise in September.
Exchanged-traded fund providers including VanEck and Global X expect the momentum to build into the year-end that will push gold back above $US5000 an ounce, while bitcoin is tipped to hit $US100,000 in 2027 and $US500,000 by 2029.
VanEck Asia Pacific Managing Director Arian Neiron said the price action reflected a “fiscal reckoning” in the world’s largest economy.
“The US is holding so much debt and long-term yields are at 2007 levels,” he said. “So the question for an investor is: well, if I’ve got too much US Treasuries, what is my real store of value? What’s the asset that’s really going to hedge the risk? That’s why the debasement trade has come to the fore again.”
Not everyone is convinced that the trade – where investors pile into assets like gold and bitcoin to hedge against a slide in the US dollar – is back for good after it dominated the market in 2025.
August was a tumultuous month for the US Treasury market with yields on 30-year bonds reaching a two-decade high at 5.33 per cent as government debt surpassed $US40 trillion.
The jump in yields prompted US Treasury Secretary Scott Bessent to step up the government’s purchases of long-dated bonds, a move widely interpreted by the market as an attempt to contain soaring borrowing costs.
But Westpac chief economist Luci Ellis said the developments weren’t reason enough to bet on the wholesale return of the debasement trade that lit a fire under the gold price in 2025 and helped push bitcoin above $US126,000.
“The buybacks are the behaviour of a government that’s worried about its bond market so you’re seeing some backwash onto gold and crypto,” Ellis said. “It doesn’t surprise me, but I don’t look at that as the main game.”
Source: https://www.afr.com/markets/currencies/gold-and-bitcoin-rallied-but-is-last-year-s-hottest-trade-really-back-20260826-p60rpj