LIVE MARKETS-Could the debasement trade make a comeback?

Brooks says in a weekend blog post that it was then-Federal Reserve Chair Jerome Powell's speech at the central bank's Jackson Hole symposium the previous August that got last year's gold rally going, as Powell shifted the Fed's emphasis away from above-target inflation, and caused a sharp bear steepening of the U.S. Treasuries curve.

For those looking for parallels, this July's Fed meeting also surprised markets on the dovish side, and also sparked a significant bear steepening.

"There’s therefore a lot of parallels between now and then, which means that - as far as the Fed as catalyst is concerned - the building blocks for the debasement trade to restart are there," Brooks wrote.

That means this week's U.S. inflation data will be crucial. Will it be soft enough to keep markets happy with a Fed in no rush to hike, or will they get really spooked and properly get the debasement trade going again?

Gold rose 7.4% last week to $4,370 an ounce, its biggest weekly gain since January, and Robin Brooks, a senior fellow at the Brookings Institute, and once chief FX strategist at Goldman Sachs, is drawing comparisons with what happened nearly 12 months ago.

You'll recall gold jumped nearly 70% from mid August 2025 to a monster peak above $5,500 an ounce by January, only to be caught up in selling linked to the war in the Gulf, and to drop back to around $4,000 by May.

As the gold rally gathered pace at the start of the year, one narrative floating around was that this was a "debasement trade" - a fear that an oncoming inflationary storm could erode the dollar's purchasing power and the value of U.S. financial assets.