LBMA 2026 Gold is sending a message as debt fears fuel the debasement trade

During a panel discussion titled “Structural Story, Tactical Trade, and Reconciling the Debasement Narrative,” moderated by Nicky Shiels, Head of Research and Metals Strategy at MKS PAMP, analysts and fund managers said gold’s resilience in the face of rising global bond yields could be an important signal that investors are becoming increasingly concerned about government finances.

Vikram Dhawan, Head of Commodities and Fund Manager at Nippon India Mutual Fund, said the debasement narrative ultimately comes down to a global economy carrying an increasingly unsustainable debt burden.

Dhawan noted that global debt has continued to rise by trillions of dollars every year, leaving governments with limited options other than some form of financial repression—effectively tolerating higher inflation while attempting to keep borrowing costs contained.

“I see visibility of higher fiscal debt, but I don’t see a visibility of any fiscal discipline,” he said.

Shayne McGuire, Portfolio Manager at the Teacher Retirement System of Texas, said the concept of debasement is hardly new. Historically, governments debased currencies by reducing the precious-metal content of coins. Today, he said, investors are increasingly concerned that growing debt will ultimately reduce the value of money.

“I think right now people are really focusing on that, the fact that the value of money is going to decline as concerns about this debt rise,” he said.

That concern is becoming particularly important for gold because the precious metal has remained resilient even as government bond yields have surged.

Dhawan said that under normal circumstances, the sharp rise in global yields should have been devastating for gold. Instead, the traditional relationship between the two assets appears to be weakening.

Despite some weakness in the gold market, prices have managed to hold solid support above $4,000 an ounce even as bond yields have surged above 5%.

Dhawan explained that gold and yields remain negatively correlated over shorter periods, but over one-, two- and three-year horizons since the pandemic, that relationship has weakened substantially and at times has even turned positive.

“I think, in a way, gold is sending us a message that maybe the global debt is reaching an inflection point where the supply of paper may probably overwhelm the demand,” he said.

Dhawan said rising yields may increasingly reflect a higher term premium—the additional compensation investors demand for holding government debt—rather than simply expectations for stronger economic growth or tighter monetary policy.

At the same time, the traditional buyer base for sovereign debt is changing. Central banks and pension funds, which historically were less sensitive to price and returns, are being supplemented or replaced by private investors demanding greater compensation for taking duration and fiscal risk.

Dhawan said this could create a more persistent disconnect between gold and bond yields.

McGuire said growing challenges in the bond market could eventually push gold deeper into institutional portfolios.

He noted that gold has historically been largely absent from strategic asset-allocation discussions at major U.S. pension funds because allocations have generally been too small to materially affect portfolio performance.

“I think in time that will change because of the challenges of the bond market,” he said. “Even though gold has no yield, it has appreciated and gained versus many bonds.”

McGuire added that gold’s limited presence in institutional portfolios is actually one reason he remains optimistic about its long-term potential.

“It’s simply not part of the discussion yet at the largest institutions in the world,” he said.

Asked what could ultimately trigger greater institutional participation, McGuire again pointed to the bond market, arguing that the continued supply of government debt could make it increasingly difficult for yields to fall sustainably.

The panel also highlighted strong structural demand from Asia.

Wei Yan, Macro Portfolio Manager at Dymon Asia, said Chinese investors have fewer alternatives for protecting wealth when domestic property and equity markets are struggling. As a result, higher real yields in Western markets do not necessarily represent the same headwind for Chinese gold demand.

“They just keep buying the dip,” Yan said.

He noted that gold has generally performed better during Asian trading hours, reflecting persistent Chinese demand even as Western investors have been more reluctant to chase prices amid elevated yields.

Dhawan also argued that changing investor behavior could reinforce gold’s appeal to younger generations. Persistent household inflation has left some investors feeling poorer in real terms even when their portfolios are generating nominal returns, while younger investors increasingly view hard assets as a way to preserve purchasing power.

“For them to take exposure into a hard asset, gold ticks all the boxes,” he said.

Although the panel remained constructive on gold’s long-term prospects, participants warned that the debasement trade does not guarantee a straight-line rally.

Dhawan said traditional physical demand has fallen sharply as prices have risen, creating uncertainty over where jewelry and other price-sensitive buyers will return to the market. He said that could keep gold volatile or range-bound in the short to medium term even as the structural outlook remains positive.

However, the panel broadly agreed that mounting sovereign debt remains a long-term problem that is unlikely to disappear with a change in political leadership.

McGuire noted that U.S. deficits expanded under both Democratic and Republican administrations, with little evidence that either party is prepared to materially address the fiscal trajectory.

“Regardless of political party in the seat running the White House or government, there’s really been no attention to one of the key drivers of gold, which is the debt and deficit,” he said.

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