WTF Friday (aka Jargon Alert): the Debasement Trade

Jargon Alert!

By Patrick Diamond, CFP®

The Debasement Trade: What is that?

It’s been in the news a lot recently. So has mention of the price of gold. The “debasement trade” is an investing idea based on the belief that the value of a country’s money will steadily decline over time—usually because its government is printing too much of it or running up too much debt. In simple terms, when money loses its purchasing power, things that are considered by some to hold lasting value—like stocks, gold, real estate, or inflation-protected bonds—tend to become more attractive. So, investors who participate in the debasement trade are essentially betting that inflation, money printing, or loose fiscal policy will weaken the currency, and they try to protect or grow their wealth by owning assets that are likely to rise in value as the dollar’s buying power erodes. The debasement trade, driven by fears that aggressive fiscal and monetary policy will devalue certain currencies, can help partly explain the rally in gold prices (but interestingly Bitcoin (aka digital gold) has been in a range since May).

Disclaimer: This blog and all blog posts are for informational and educational purposes only and do not constitute financial or investment advice and do not constitute trading recommendations.