Gold holds near three‑month highs as ‘debasement trade’ returns to the spotlight

Gold prices are consolidating near three‑month highs, pausing after a sharp rally that has unfolded over recent weeks. In early US trading on August 26, bullion eased slightly but remained up roughly 15% over the past 21 sessions, even as the US dollar firmed modestly. The pullback comes against a backdrop of declining oil prices and softer long‑term US yields, which have helped cool inflation fears and prompted some investors to lock in profits.

A key narrative behind gold’s strength is the revival of the so‑called “debasement trade.” Investors who subscribe to this view worry that persistent fiscal deficits and loose monetary policy will gradually erode the purchasing power of fiat currencies such as the dollar and the euro. To hedge that risk, they rotate into hard assets – notably gold – which are viewed as stores of value that are less directly tied to any government’s balance sheet.

The debate is particularly intense in the United States, where federal debt has doubled over the past decade. Research from major investment banks points out that while higher yields have made Treasuries more attractive on paper, concerns over long‑term debt sustainability are pushing some asset allocators to favor gold over sovereign bonds at the margin. Whether bullion can extend its advance will likely hinge on how investors reassess US fiscal policy and the Federal Reserve’s rate path in the months ahead.