US indexes advance with S&P, Dow slightly ahead of Nasdaq.
Materials lead S&P 500 sectors: real estate lags most.
Dollar edges down; US crude rises ~1%; gold up ~0.9%, bitcoin edges down.
US 10-year Treasury yields edge down to ~4.792%.
Dollar debasement trade gathers pace
Growing concerns about the U.S. government's ballooning debt burden and recent Treasury market interventions have rekindled investor interest in gold and bitcoin as hedges against potential dollar debasement, according to Jack Ablin, chief investment officer at Cresset Capital.
The so-called dollar debasement trade is a bet that Washington will manage its debt load through financial repression rather than meaningful spending cuts or tax increases.
The trade has gained traction in recent weeks, with gold climbing about 15% since early July to roughly $4,686 an ounce and bitcoin posting its strongest weekly performance in three years, Ablin said.
Investor concerns have intensified since U.S. federal debt topped $40 trillion last month and annual interest payments exceeded defense spending.
"A government paying an enormous interest bill has a strong motive to want borrowing costs lower. Balancing the budget is the hard way, while financial repression, holding interest rates below the inflation rate, the “easy” way," he said.
Treasury Secretary Scott Bessent's decision to increase long-term bond buybacks also fueled those concerns. The move failed to stem a rise in yields and instead undermined confidence in the dollar while supporting gold and bitcoin prices, Ablin said.
"Wary investors viewed the world’s most powerful economic policymaker taking unconventional, seemingly ineffective action to suppress yields, reinforcing the debasement signal," Ablin said.
Federal Reserve Chair Kevin Warsh's speech at the Jackson Hole symposium added to investor unease by sharpening warnings about inflation and moving closer to signaling a potential interest-rate increase.
Still, Ablin cautioned against increasing gold allocations aggressively.
Demand from central banks, traditionally among the largest buyers of gold, has weakened significantly, while retail investors who helped drive the metal to its January peak have retreated as momentum faded, contributing to a subsequent 30% decline, he said.
Gold also generates no income at a time when Treasury securities offer yields of about 4% to 5%, underscoring the opportunity cost of holding the metal.
"The debasement trade is well known, and gold’s traditional buyers, central banks, are pulling back even as private wealth steps in. A modest gold allocation as insurance against policy unpredictability and currency erosion could make sense if it’s sized to acknowledge the risk without sacrificing the income and stability that bonds still provide," he said.
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