JPMorgan’s analysts have highlighted how the “debasement trade” is driving gains in both gold and bitcoin. Led by global strategist Nikolaos Panigirtzoglou, the analysts noted that gold has surged beyond what could be explained by dollar and real bond yield movements alone. Instead, they attribute the increase to a range of factors, including geopolitical uncertainty, inflation concerns, and declining confidence in fiat currencies.

They explained: “The ‘debasement trade’ is a term that reflects a combination of gold demand factors which in our client conversations range from structurally higher geopolitical uncertainty since 2022, to persistent high uncertainty about the longer-term inflation backdrop, to concerns about ‘debt debasement’ due to persistently high government deficits across major economies, to waning confidence in fiat currencies in certain emerging markets, and to a broader diversification away from the dollar.”

The analysts also emphasized that gold’s price, around $2,700 per ounce, and bitcoin, near $60,000, have given them new currency, so to speak. They pointed to the falling share of the U.S. dollar in global currency reserves, noting that the dollar now accounts for just 57% of reserves, according to International Monetary Fund (IMF) data. Despite China pausing its gold purchases since April, JPMorgan said:

There is little doubt that the pace of central bank purchases is key to gauging the future trajectory for gold prices.

The JPMorgan analysts also examined institutional investor behavior, stating:

To us, this suggests that speculative institutional investors such as hedge funds might see gold and bitcoin as similar assets, i.e. both as beneficiaries of the so-called ‘debasement trade’, but not ethereum.

Furthermore, they observed that retail investors seem to view gold and bitcoin similarly, given inflows into bitcoin exchange-traded funds (ETFs) after August. A potential Donald Trump victory in 2024 could further support the “debasement trade” by increasing geopolitical tensions and stimulating expansionary fiscal policies, according to JPMorgan. The analysts remarked: “This is because investors have been rather occupied in recent months with the recession trade.”

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