- JPMorgan strategists say the “debasement trade” driving up gold and bitcoin prices may continue due to factors like geopolitical uncertainty, concerns about inflation, and diversification away from the dollar.
- The analysts find speculative demand from institutional investors for gold and bitcoin futures, suggesting they see these assets as beneficiaries of the debasement trade.
- A potential Trump victory in the 2024 U.S. election could further boost bitcoin and reinforce the debasement trade through policies like tariffs and expansionary fiscal policy, according to JPMorgan.
The “debasement trade” has lifted bitcoin and gold recently, and this trend may continue according to a new report from JPMorgan. The debasement trade refers to factors like high geopolitical uncertainty, inflation concerns, debt debasement fears, and waning confidence in fiat currencies.
Alternatives to the Dollar Have Not Responded Well to Recent Geopolitical Tensions
The alternatives to the US dollar, including gold and bitcoin, have not responded significantly to the latest fighting between Iran and Israel. Gold prices have remained roughly flat, while bitcoin dropped around 3% since oil prices started spiking higher.
Gold Has Risen More Than Expected Based on Real Bond Yields
According to JPMorgan strategists, gold prices have gone well beyond the moves implied by shifts in the dollar and real bond yields. Instead, gold has been driven by the debasement trade factors mentioned previously. The strategists cited IMF data showing the share of the US dollar in currency reserves has fallen to a new low, even as China’s central bank paused gold purchases since April.
Speculative Investors Appear Bullish on Gold and Bitcoin
Analyzing futures data from the CFTC, the JPMorgan team finds a bullish impulse in gold and bitcoin futures, but not in ethereum futures. They believe this suggests speculative investors see gold and bitcoin as similar assets that benefit from the debasement trade. Inflows into bitcoin ETFs in September also indicate retail investors may view gold and bitcoin similarly.
Debasement Trade Could Continue Due to Geopolitics and US Election
The JPMorgan analysts argue the debasement trade may persist, boosted by rising geopolitical tensions and the upcoming US election. A Trump victory could reinforce the debasement trade through tariffs and expansionary fiscal policy. Most asset classes do not currently reflect the possibility of a Trump win, as investors have been focused on recession risks.
