WSJ reports-

'Investors worried about the future of the dollar and other major currencies are piling into gold, bitcoin and other alternative assets, powering what has become known on Wall Street as the debasement trade.

Traders have snapped up gold since Federal Reserve Chair Jerome Powell signaled in August that the central bank would begin cutting interest rates despite low unemployment and above-target inflation, pushing prices to records. Most-actively-traded gold futures on Tuesday surpassed $4,000 a troy ounce for the first time.

The gold rally of 2025 is unusual in that it hasn’t been fueled by a financial meltdown. A 52% gain in futures this year is on track to outpace similar surges during the first year of the Covid-19 pandemic and the 2007-09 recession, trailing only the inflationary shock in 1979.

These days, investors are pouring money into precious metals such as gold and cryptocurrencies like bitcoin at the same time President Trump has pledged to juice the economy through tax cuts and traders have pushed stocks to records with a fervor for all things artificial-intelligence.

As investors make increasingly speculative bets that the boom will continue, they are also looking for ways to shield themselves from potential fallout of U.S. policy dysfunction, including widening budget deficits and the current government shutdown. That is pushing them into assets not denominated in dollars.

Wall Street has pointed to this move as evidence that ballooning debt and uncomfortably high inflation are disrupting the outlook for currencies underpinning the global financial system.

“We’re seeing a tug of war,” said Joe Davis, chief economist at Vanguard Group. “You’ve got the S&P 500 pricing in an AI supernova, and you’ve got the gold camp saying ‘We’re going to have structural deficits, we have fiscal pressure in the U.S., and I need to manage that risk.’ ” Sept. 2025Oct.-7.5-5.0-2.502.55.07.510.012.515.017.520.0%GoldBitcoinS&P 500 WSJ​Dollar​Index

Gold prices have risen for years, thanks to central banks the world over hoovering up bullion, a trend that accelerated after Western countries’ unprecedented sanctions on Russia over its 2022 invasion of Ukraine. That helped gold this year overtake the euro as the second-largest reserve asset.

Trump’s promise to upend the global trading system in 2025 added momentum by pushing the U.S. dollar by one measure to its weakest first half in more than five decades.

The dollar’s value has since stabilized. So did gold’s—until just after Powell’s speech in August.

Even after Trump’s tariffs have boosted some prices, the central banker signaled the beginning of a Fed rate-cutting cycle to ward off danger signs in the U.S. labor market. Trump, who is expected to appoint Powell’s successor as Fed chair next year, has called for even steeper cuts in the months ahead in a bid to run the U.S. economy hot.

Expectations for rate cuts boosted long-term inflation expectations, propping up yields on longer-term U.S. government debt. They also spurred a rush into risky assets, from tech stocks to cryptocurrencies. Bitcoin, which investors often describe as a form of “digital gold” to hedge against currency risks, is up more than 30% this year and touched records above $125,000 on Monday.

At the same time, even investors who are bullish on stocks and the economic outlook turned to precious metals as protection. Traders in September funneled a record $33 billion into U.S. exchange-traded funds linked to physical gold, according to Morningstar Direct. Last week, BlackRock tweaked its model portfolios that are tracked by thousands of financial advisers to increase equity and AI exposure while also adding to hedges such as gold.

In previous eras, more investors might have sought insurance from dollar-denominated assets such as Treasurys, pushing up the dollar’s value and weighing down borrowing costs for Americans.

Now, Citadel Securities founder Ken Griffin said, investors and central banks “view gold as a safe-harbor asset in a way the dollar used to be viewed. That’s what’s really concerning to me.”

Speaking to a Bloomberg reporter at a conference in New York, Griffin summed up the new mindset: “I’m going to bet on American business, but I want to immunize some of my sovereign exposure to the United States.” U.K. 30-Year GiltU.S. 30-Year Treasury BondFrance 30-Year Government Bond Japan 30-Year Government Bond2021'250123456%

Similar dynamics are playing out in other rich nations, where political instability is bleeding into markets.

French bond yields jumped this week after France’s prime minister resigned. Yields on long-term bonds in the U.K. have remained elevated in recent months thanks to concerns the government will need tax raises or spending cuts to meet its budget rules.

In Japan, incoming Prime Minister Sanae Takaichi wants lower interest rates and more control over the country’s central bank despite persistent inflation. The yen has weakened against the dollar in recent days.

Given the sheer scale of government debt, even small shifts in investors’ allocations from bond markets can have outsize price impacts on assets such as gold, silver or platinum. Goldman Sachs recently estimated that gold prices could near $5,000 a troy ounce if just 1% of privately held Treasurys were swapped for the precious metal.

“Gold is a store of value that doesn’t rely on institutional trust,” the bank told clients.

Analysts at Goldman and some other research shops expect central-bank purchases to keep propelling prices higher. But Bank of America notes that since the 1860s, gold’s multiyear runs upward have consistently been followed by busts.

The U.S. dollar has remained roughly stable since its first-half stumble, while the Supreme Court has signaled that it might rebuff Trump’s attempts to take more direct control of the Fed. TD Securities reminded clients that trust in U.S. institutions ultimately allowed the dollar to retain its reserve status after then-President Nixon’s 1971 move to sever the greenback’s convertibility to gold.

“Now it seems like traders are doing what they do best, which is to push the narrative too far and try to ride the wave,” Brian Jacobsen, chief economist of Annex Wealth Management, said of the debasement trade. “The danger is that once the narrative shifts, the wave crashes.”

Something similar happened with the only gold run-up bigger than today’s. Measured from the beginning of the 1979 rally, all the gains in real gold prices had evaporated by mid-1982.'

The dollar and the empire that it supports is in decline.

The quality of governments, as they rise and fall - have always been instrumental in the wealth of nations.

Will Bitcoin and Gold be the basis of a new era or will it be led by China, now the dominant productive economy globally in terms of manufacturing, commodities and infrastructure?

Thoughts?