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UNWINDING DOLLAR DEBASEMENT BETS SEES GOLD LOSE ITS SHINE

The dollar debasement trade - a bet that the value of the U.S. dollar will be eroded due to loose monetary policy and persistent fiscal deficits - has unwound, which has spelled trouble for gold.

The precious metal surged to a record high in January of $5,594 per ounce as concerns mounted that U.S. President Trump's policies would debase the dollar, but gold has since fallen about 30% from its high to around $4,000.

"In 2025, there was widespread concern that Donald Trump would undermine the independence of U.S. monetary policy, nominating a political lackey to chair the Federal Reserve, forcing it to cut interest rates and run inflation persistently above the Fed's 2% target," says Gavekal Research in a note.

"Developments over the last seven months have made this scenario unlikely."

Those developments include the appointment of Kevin Warsh to lead the Fed and the reappointment of 11 of the 12 regional Fed presidents, Gavekal said. In Warsh's first meeting earlier this month, the Fed emphasised its commitment to price stability, surprising some who had expected a more dovish Fed under the new chair.

But RBC is still positive on gold in the medium- to long-term, believing the debasement trade has more room to run.

"We think at and below the $4000/oz level, there may be incremental interest, but more importantly, the broader thematic underpinnings of the debasement trade are intact," RBC commodity strategist Chris Louney says.

"And long-term, we think the drivers remain for gold given concerns around increasing government debt, etc."

(Samuel Indyk)

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EARLIER ON LIVE MARKETS:

SOFT END TO THE WEEK CLICK HERE

EUROPE BEFORE THE BELL: SHAKY SENTIMENT CLICK HERE

CHIPFLATION CLICK HERE