Gold Prices Surge as Dovish Signals Reignite Debasement Trade

The debasement trade is making a comeback in the financial markets, according to Robin J Brooks. This trend, which began last year when then-Fed Chair Powell signaled dovish policies at Jackson Hole, led to a stratospheric rise in gold and other precious metals prices. Now, with the Fed's recent dovish surprise and rising tensions in the Persian Gulf, prices are increasing once again.

The chart of gold prices from January 2025 to now shows that there is a geopolitical element to its rise, as well as a strong correlation between dovish surprises from the Fed and the debasement trade. Since the war with Iran began, however, gold has not traded like a safe haven asset.

Brooks suggests that last year's Jackson Hole keynote was a catalyst for the debasement trade due to its shift in emphasis away from above-target inflation. He believes that this year's parallels between now and then make it likely that the building blocks are there for the debasement trade to restart.