The debasement trade is back, but gold still faces risks - Analysts

Analysts have described the renewed bullish momentum as a resurgence of the debasement trade after the U.S. Treasury announced it would buy long-dated bonds in an attempt to reduce borrowing costs.

Bart Melek, Head of Commodity Strategy at TD Securities, said in a note Friday that gold and silver are surging as investors worry about America's fiscal situation after the nation’s debt surpassed $40 trillion last week.

“Based on Treasury Department statements, market participants believe the government bond market interference may get even more aggressive. At this stage, gold may continue to respond to the weaker USD,” Melek said.

So far, Treasury Secretary Scott Bessent’s planned buyback has had little impact on the long end of the yield curve, with 30-year yields trading at 5.23% and 10-year yields around 4.70%.

According to some reports, the Treasury Department can tap into nearly $1 trillion in its General Account to help fund its plans to purchase government bonds.

Although TD Securities is bullish on gold in this environment, Melek said the precious metal still faces some potential headwinds as rising energy prices continue to drive inflation fears higher. He added that the bar for a rate hike remains low.

“With crack spreads surging along with oil, there is still the possibility that the Fed will hike rates, as inflation expectations rise due to the continued oil shock,” he said. “A move to our $5,350/oz target is a little premature for now.”

In another note published Friday, Nicky Shiels, Head of Research and Metals Strategy at MKS PAMP, said that if last year is any indication, the debasement trade has significant potential for gold. She said this sentiment is becoming a structural theme and could drive retail investors into a full-blown FOMO bubble.

While gold has momentum to move higher, Shiels added that prices may have overshot tactically. She also noted that the bar for a rate hike remains low.

However, Shiels said that despite the risks of higher interest rates, gold could perform well as it remains the cleanest “debasement” hedge and the cleanest “US political intervention” hedge.

“One institution has a tightening bias, the other a loosening bias, aimed at the same curve,” she said. “While the bar for a Fed rate hike is low, Brent crude near $94, tight diesel/product markets, and rising crack spreads are an independent inflation-expectations driver — even if Treasury succeeds in capping nominal yields, real yields/breakevens/inflation expectations can keep rising from the energy side, which is a new inflation-driven Gold tailwind outside of the debasement narrative.”

Commodity analysts at JPMorgan referred to gold’s rally last year as the “debasement trade.” Broad, global diversification away from the U.S. dollar in the second half of 2025 helped to drive gold prices to a record high of $5,600 in January. (Kitco Global Index shows how much of today's gold move is the dollar versus the gold market itself.)

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