'Debasement trade' Why many are piling into gold and bitcoin

Investors are piling into assets such as gold, bitcoin and shares amid worries about government debt, central bank independence and the weakness of major currencies.

- Graeme Wearden

The trade has even been given a moniker: the “debasement trade”. But what does it mean?

What is the debasement trade?

Debasement is the act of reducing something’s quality or value.

Henry VIII was behind one notorious example: the “great debasement” involved the amount of gold and silver in coins being substituted with cheaper metals such as copper to fund his lavish lifestyle as well as wars with France and Scotland. It earned him the nickname Old Coppernose when silver started to wear off coins featuring his face.

The modern debasement trade involves investors moving from fiat currencies, such as the dollar, towards “harder” assets that provide safety from the risk of rampant inflation.

It is being driven by anxiety that governments will not, or cannot, rein in borrowing by cutting spending and raising taxes.

The concern is that politicians may take control of central banks, allowing them to run persistently high deficits and prioritise debt financing over price stability.

Why is the debasement trade now in vogue?