The Debasement Trade Broadens Across Precious Metals

Key Takeaways

• Major developed economies are increasingly operating under fiscal dominance, where large and persistent deficits shape monetary policy. This shift has accelerated the structural reallocation away from fiat-based assets.
• Gold and silver reached new all-time highs in October, reflecting a broadening “debasement trade” as investors rotate toward hard assets to preserve purchasing power and hedge systemic and geopolitical risks.
• Silver’s liquidity-driven squeeze and subsequent consolidation underscore structural tightness in physical supply, suggesting a higher long-term price floor and continued upside potential amid growing industrial and strategic demand.

Performance as of October 31, 2025

Source: Bloomberg and Sprott Asset Management LP. Data as of October 31, 2025.
* BPS stands for basis points. **Bloomberg Indices measure ETF holdings; the ETFGTOTL is the Bloomberg Total Known ETF Holdings of Gold Index; the ETSITOTL is the Bloomberg Total Known ETF Holdings of Silver Index.

Market Review

Spot gold increased by $143.96 (or +3.73%) in October, closing at $4,002.92 - the highest month-end level on record. Gold opened October with strong upward momentum, reaching an intraday high of $4,381.51 before profit-taking and position adjustments contributed to a pullback in the second half of the month. Overall, October extended the acceleration of the “debasement trade” that began in late August. 

Gold hit a record $4,002.92 in October as the debasement trade gained momentum.

Macro factors contributing to the gold rally included geopolitical tensions, U.S.-China tariff negotiations, further anticipated Fed rate cuts, concerns about Fed independence, and soft labor data. Generally, financial system anxiety was centered on eroding trust in fiat currencies tied to underlying debt and fiscal deficits. 

Other precious metals also posted significant gains as the debasement trade broadened and deepened. Silver—now up 68.46% this year—traded as high as $54.48 during October amid a sharp liquidity-driven squeeze before retracing part of the move. Platinum and palladium are up 73.46% and 57.63% year-to-date, respectively. While each metal has its own supply-demand profile, the collective move higher reflected a broader shift into hard assets as stores of value, outweighing all other fundamental drivers. 

In early September, as gold broke out to new highs, the debasement trade began to accelerate. By the first half of October, the market narrative had moved into the mainstream: investors increasingly recognized that major developed economies—including the U.S., Europe, and Japan—were unlikely to rein in public debt and were instead expanding fiscal deficits to even higher, and more concerning, levels. To varying degrees, these economies are entering a state of fiscal dominance⁷, in which fiscal priorities shape monetary policy rather than the other way around. This shift toward fiscally driven monetary expansion has prompted more investors to allocate to hard assets that cannot be easily diluted by government policy. 

The expansion of fiscal deficits is global in scope and affects all major currency blocs. As a result, the bid for gold is also global and not solely a U.S. or U.S. dollar phenomenon. Investor demand for gold and other hard assets has risen sharply over the past two months, but this shift reflects a trend that has been developing for much longer. The debasement trade is not new—it is the latest phase of a structural reallocation toward stores of value that are less exposed to fiscal and monetary dilution.

The broad equity market, as measured by the S&P 500 Index, closed at a new all-time monthly high, marking its sixth consecutive month of gains. Equities continued their strong advance, supported by the ongoing AI-driven capital expenditure cycle, lower policy rates, upward earnings revisions, loose financial conditions, systematic volatility selling, and record levels of share buybacks. Risk assets also benefited from relatively stable yields and yield curves, a range-bound U.S. dollar, low currency volatility, tight credit spreads, and credit default swap levels near their five-year lows.

Figure 1. Spot Gold (2023-2025)

Source: Bloomberg, as of November 1, 2025. Past performance is no guarantee of future results. 

Part 1. The Debasement Trade Enters the Mainstream

Overview of the Debasement Regime

The debasement trade reflects a structural regime in which fiat currencies gradually lose purchasing power as persistent fiscal deficits, debt monetization, and ongoing liquidity injections erode real value over time. Unlike a one-time inflation shock, debasement unfolds as a rolling and self-reinforcing policy dynamic. While the trade can experience tactical periods of overbought or oversold positioning, the underlying drivers are secular in nature, and the pace of debasement is likely to accelerate.

Key Structural Drivers

• Fiscal dominance: Fiscal deficits have become a primary engine of nominal growth and inflation, with monetary policy increasingly shaped by the needs of government financing.

• Interest‑expense feedback loop: Higher interest rates raise the government’s debt-service burden, which in turn expands deficits and reinforces the need for continued money creation.

• Financial repression⁸: Policy remains biased toward keeping policy rates near neutral despite persistent core inflation, while Treasury issuance skews to shorter maturities to manage duration and funding costs.

• Fiscal–monetary coordination: The Fed and Treasury are effectively operating in alignment—with one tightening liquidity and the other adding it—blurring the traditional separation between monetary and fiscal authority.

The Debasement Trade is Global and Accelerating

In September and more notably in October, the debasement trade accelerated and gained broader mainstream recognition. Investors are increasingly hedging and diversifying away from fiat currencies and sovereign debt and reallocating toward hard assets such as gold, other precious metals, and select commodities. This shift is not isolated to any single region—the U.S., Europe, Japan, and other developed economies are experiencing similar fiscal and monetary pressures. Today, fiscal transfers, rather than traditional bank credit creation, are the primary drivers of money supply growth, reinforcing a structural bid for hard assets that cannot be easily diluted by policy actions.

Implications for Assets

• Fiat-based assets face headwinds: Sovereign bonds and other nominal assets are structurally disadvantaged in an environment where real yields tend to drift lower over time.
• Liquidity provides a floor for risk assets: Persistent fiscal support and accommodative financial conditions help sustain asset prices even during periods of slowing economic growth.
• Investors rotate toward hard assets: Over time, capital increasingly moves into gold, other precious metals, and select real-asset-linked equities as investors seek stores of value that are less exposed to monetary dilution.

Part 2: What Could Stop the Debasement Trade?

Core Structural Challenges

Beyond the possibility of a short-term overbought correction in gold, deeply embedded fiscal imbalances make a sustained reversal of the debasement trend difficult. Key constraints include:

• Reserve‑currency dynamics: Maintaining the U.S. dollar’s reserve-currency status tends to require persistent external and fiscal deficits, making meaningful consolidation challenging.
• Twin deficits⁹: Large fiscal deficits and current-account deficits reinforce one another, creating a self-sustaining funding requirement.
• Financialization of government revenues: Tax receipts are increasingly tied to market cycles; downturns can quickly weaken revenue while spending needs remain rigid.
• Structural spending commitments: Entitlement programs, defense expenditures and rising interest costs on the national debt are politically and economically difficult to reduce, creating a persistent fiscal feedback loop. 

While potential solutions may seem straightforward, the political feasibility is limited. Meaningful fiscal consolidation would likely require measures that are unpopular with voters and policymakers, making them difficult to implement. Moreover, the path to improvement would likely involve economic adjustment before benefits materialize: spending cuts (austerity) can slow growth and reduce tax revenues in the near term, while aggressive tax increases can weigh on investment and consumption. Both approaches risk initially widening, rather than reducing, fiscal deficits.

Structural deficits mean the debasement cycle is far from over.

When governments approach borrowing limits, the historical de facto response has often been an inflationary erosion of debt, in which rising prices reduce the real value of outstanding obligations before policy reforms are introduced to restore fiscal discipline. After World War II, for example, the U.S. combined financial repression (keeping interest rates artificially low) with targeted austerity measures to manage its debt burden. However, replicating that approach today is more complex: aging demographics, reduced social cohesion, and heightened political polarization make coordinated, sustained reform more difficult to achieve.

The forces driving deficits and currency debasement are structural rather than cyclical. Without a significant reset—such as an inflationary period followed by coordinated fiscal reform—the current trend is likely to persist. U.S. policy is effectively calibrated to “run it hot” in an effort to grow nominal GDP faster than the debt burden, implying continued fiscal and monetary friction ahead. From this perspective, the debasement trade is still in the early stages of a longer structural cycle.

Part 3: Gold’s Secular Trend, Cyclical Behavior, and Sentiment

Gold’s long-term secular rise is anchored in monetary debasement, persistent fiscal expansion, and heightened geopolitical uncertainty. As a result, gold continues to function both as a store of value and as a hedge against systemic risk. Short-term corrections within this broader trend are primarily driven by positioning and sentiment: policy signals aimed at cooling inflation or shifts in labor market conditions can trigger shakeouts among leveraged investors, leading to temporary consolidations. Overbought phases in a secular bull market¹⁰ typically resolve through time-based corrections, as seen during April-August 2025. Throughout these cycles, central banks act as large, price-insensitive buyers, reinforcing structural demand and contributing to gold’s price resilience.

Central Banks and Strategic Buying

After years of declining reserve allocations, central banks have become persistent net buyers of gold, pushing the metal’s share of global reserves to recent highs. The 2022 freeze of Russia’s foreign exchange reserves accelerated this trend, particularly among central banks in China, India and Eastern Europe, as gold’s role as a sanction-resistant reserve asset gained prominence. Beyond geopolitics, rising concerns about currency debasement have strengthened the incentive for central banks to maintain a steady, secular bid for gold.

Since 2013, on a cumulative net basis, central banks have purchased approximately 264 million ounces (8,209 tonnes) of gold, compared with roughly 15 million ounces (467 tonnes) accumulated by gold ETFs over the same period (Figure 2). Only one quarter during this span saw net central bank selling (3Q20, amounting to just 0.34 million ounces, or 10.6 tonnes). The relative scale and price insensitivity of central bank demand means that, over the long term, central banks are the primary anchor of gold’s secular price trend, while investment funds and speculative flows drive shorter-term volatility. This persistent official-sector bid effectively creates a “central bank gold put,”¹¹ helping to limit drawdowns and reinforce the long-term bullish backdrop. 

Figure 2. Net Cumulative Gold Purchases for Central Banks and ETFs, millions of oz (2013-2026)

Source: Bloomberg. Central bank data as of June 30, 2025. ETF data as of October 31, 2025. Past performance is no guarantee of future results. 

Monetary Debasement, Inflation, and Portfolio Considerations

The QE/ZIRP/NIRP^12,13 era has evolved into a regime where debt monetization is increasingly used to address economic and financial stresses, contributing to sustained inflationary pressures. Rising public debt burdens, persistent fiscal deficits, and declining confidence in fiat currency regimes form the core of the secular bullish case for gold. While gold has experienced significant price appreciation and periodic volatility, the underlying structural thesis remains intact.

This year, the debasement trade has expanded beyond gold into other precious metals. Several factors have contributed to the deepening and broadening of this theme: 

• Strain on the traditional 60/40 portfolio: Persistent inflation and the influence of fiscal dominance have weakened the diversification benefits that once existed between equities and bonds. From 2001 through early 2021, the two asset classes typically held a negative correlation, providing a natural hedge. Since mid-2021, however, that correlation has turned positive, reducing the effectiveness of the 60/40 structure.
• Rotation toward real and hard assets: Investors have increasingly diversified into gold, silver, platinum, palladium, select commodities, and even cryptocurrencies as complementary hedges. These assets are being used to mitigate debasement and concentration risk while aiming for greater resilience across varying inflation and volatility environments.

Part 4: Policy Dynamics and Historical Parallels 

Central Bank Independence

Central bank independence is increasingly being questioned as the Federal Reserve operates under growing political pressure. The Fed has now cut rates twice in recent months and is expected to cut again at the December Federal Open Market Committee (FOMC) meeting. It has also announced the end of quantitative tightening effective December 1. Both developments align with fiscal priorities favoring easier policy and abundant liquidity. Historically, central banks were originally established to finance government spending, and today policy appears to be shifting back toward that role. The modern framework of Fed independence, which began during the Paul Volcker era (1979-1987), may therefore represent the exception rather than the norm.

From Bretton Woods to Fiat

In August 1971, the U.S. ended dollar convertibility into gold, effectively dismantling the Bretton Woods system. This shift ushered in the modern fiat currency era, in which floating exchange rates replaced the hard constraint of gold backing. While this structure provided greater policy flexibility, it also introduced a higher risk of monetary and fiscal debasement.

During the 1970s, loose fiscal and monetary policy, combined with the oil shocks of 1973 and 1979, drove inflation sharply higher, weakened the U.S. dollar, and contributed to an extended period of stagflation.¹⁴ Investors responded by reallocating toward real assets; gold rose from $35/oz in 1971 to more than $800/oz by 1980. This period established the foundational precedent for modern hard-asset investing in environments characterized by currency debasement and inflationary pressure.

Parallels to Today

The political pressure placed on the Federal Reserve in the 1970s finds a clear parallel in current policy dynamics. Just as elected officials once influenced monetary decisions—such as during the Nixon-Burns era—today’s environment reflects similar tensions between central bank independence and fiscal priorities.

Monetary expansion in the modern era echoes the policy looseness of the 1970s. The post-2008 era of quantitative easing, followed by the unprecedented fiscal and monetary stimulus deployed during the pandemic, has significantly increased system-wide liquidity, creating conditions reminiscent of that earlier period of aggressive accommodation. Inflationary pressures have since re-emerged, driven in part by structural fiscal dominance. Persistent deficits and the monetization of government debt have renewed concerns about sustained price instability, challenging the view that inflation was either a problem of the past or a transitory phenomenon.

Although the U.S. dollar remains the world’s primary reserve currency, rising debt levels and increasing geopolitical fragmentation have introduced longer-term questions about the durability of that status. These dynamics contribute to greater uncertainty in the global financial system and weigh on investor confidence. Capital flows reflect this shift: investors are increasingly reallocating toward real assets and alternative stores of value as they seek protection against currency debasement and broader systemic risk.

There is a key difference between today’s highly integrated global financial system and the simpler structure of the 1970s. Yet the underlying challenge remains the same: maintaining confidence in fiat currency. When the monetary anchor weakens and inflation accelerates, capital historically shifts toward scarce, hard assets to preserve purchasing power. The secular drivers of the debasement trade therefore remain intact. In an environment defined by fiscal dominance, persistent inflation, and heightened geopolitical uncertainty, gold’s role as a hedge and a barometer of trust in the monetary system is more relevant than ever.

Part 5: Silver Market Update

For the month, spot silver rose by $2.04 (+4.38%) to close at $48.69, marking a new all-time monthly closing high. Silver extended its September rally into early October, reaching an intraday high of $54.48 during a pronounced silver squeeze, before a wave of profit-taking coincided with the mid-month peak in gold prices (see Figure 3).

Silver’s performance this year has been extraordinary.

Silver’s performance this year has been extraordinary, characterized by sharp moves and record-breaking gains. After decisively breaking through the $35 resistance level, silver rallied nearly 55% over a five-month period, culminating in the October 17 intraday high of $54.48. The subsequent decline of roughly 16% reflected the unwinding of squeeze-driven positioning and a broader correction in precious metals following gold’s interim peak.

Despite this consolidation, silver recovered to end the month at $48.69 and remains up 68.46% year-to-date; its strongest annual performance since 1979.

Figure 3. Spot Silver (2021-2025)

Source: Bloomberg. Data as of 11/1/2025. Past performance is no guarantee of future results. 

What Fueled the Silver Squeeze?

We have maintained a constructive view on silver throughout the year and have written extensively on the potential for a price squeeze, though the exact timing and mechanics were always difficult to predict due to limited transparency in the physical market. The mid-October surge in silver was driven primarily by a liquidity squeeze in the London OTC market, rather than by a sudden increase in end-user demand. 

The silver squeeze was driven by structural liquidity stress rather than a surge in demand.

Multiple factors contributed to the tightening of available physical supply: Tariff-related flows redirected metal to the U.S. earlier in the year; Indian retail demand remained exceptionally strong; and significant investment inflows into silver ETFs further reduced the LBMA (London Bullion Market Association)¹⁵ free float. At the same time, Chinese exports largely bypassed the LBMA system by routing through Hong Kong, leaving London inventories critically constrained.

The resulting scarcity drove lease rates¹⁶ to extreme levels and drained forward liquidity¹⁷ in the LBMA market, forcing EFP¹⁸-linked short positions to cover in the spot market (see Figure 4). Logistical constraints—particularly the need to aggregate and transport LBMA-deliverable bars from U.S. vaults—further delayed physical delivery, reinforcing backwardation and accelerating momentum buying as silver broke above $50/oz to new all-time highs.

Ultimately, the squeeze was driven by structural liquidity stress rather than a surge in end-demand. The dislocations became severe enough to trigger reverse-arbitrage flows, which helped ease the tightness and unwind the most acute pressures in the market.

Figure 4. Silver Lease Rates and Spot-Futures Spread

Source: Bloomberg. Data as of 11/1/2025. Past performance is no guarantee of future results. 

The Correction

The correction in silver prices following the mid-October squeeze reflected an easing of liquidity stress rather than a deterioration in underlying demand. As London lease rates surged to extreme levels, the tightness that had fueled the rally triggered reverse-arbitrage flows, directing metal back into LBMA inventories. Approximately 48 million ounces were withdrawn from CME vaults¹⁹ in October, and the reopening of the Shanghai export arbitrage window signaled metal moving both east and west to relieve scarcity. These flows, along with negative EFPs, marked the transition from crisis conditions toward normalization.

Improved liquidity was reinforced by cooling Indian demand, declining local premiums, and profit-taking in silver ETPs, which released additional supply back into the market. Broader sentiment also shifted as optimism over U.S.-China trade negotiations and a more measured tone from the Federal Reserve tempered investor appetite. While logistical constraints slowed the rebalancing process, the anticipated return of metal ultimately capped the rally and contributed to the subsequent price retracement.

Bullish Fundamentals Remain

Despite recent volatility, the underlying drivers of silver’s strength remain firmly in place. The October squeeze effectively reset the price floor at a higher level, reflecting both structural tightness and increased investor awareness of silver’s strategic role. Concerns over expanding government debt, questions surrounding the long-term durability of the U.S. dollar’s reserve status, and the broader debasement trade continue to support sustained investment demand.

On the supply side, persistent market deficits are drawing down the pool of freely traded silver, while refining bottlenecks in the scrap market leave the system vulnerable to future liquidity stress. Primary mine production has been largely flat for decades and has not responded meaningfully to higher prices, reinforcing the structural supply constraint. Investment flows remain the largest marginal driver of price behavior.

While short-term corrections are to be expected following a rapid advance, silver’s macro backdrop and supply-demand fundamentals continue to argue for further strength. We maintain a constructive outlook for silver through the end of the year and into 2026.

Silver As a Critical Mineral

In August, the U.S. Geological Survey added silver to its list of critical minerals for the first time. This designation elevates silver beyond its role as a precious metal to that of a strategic industrial resource. Silver’s irreplaceable use in solar panels, electric vehicles, semiconductors, batteries, and medical technologies ensures durable long-term demand and reinforces its strategic importance in the energy transition and advanced manufacturing.

Silver now deemed critical for energy and tech.

U.S. policy is likely to evolve toward strategic stockpiling for defense, energy, and technology applications—similar to approaches taken with uranium and rare earth elements—introducing an additional structural layer of demand beyond investment flows. At the same time, mine supply has remained essentially flat for decades, and refining constraints continue to limit the availability of scrap, leaving the market vulnerable to renewed liquidity tightness.

The combination of rising strategic demand and constrained supply could support higher prices over the long term and amplify volatility during periods of geopolitical or macroeconomic stress. As government involvement increases, silver is likely to be viewed not only as an industrial input but also as a strategic asset and a store of value. These developments have the potential to reshape global supply chains, influence investment strategies, and redefine the role of silver in portfolios in the years ahead.

Similar developments are unfolding in China. Following the U.S.-China agreement on rare earths and critical minerals, China implemented new procedures requiring state-owned enterprises to obtain quota reviews and joint government approvals for the export of tungsten, antimony, and silver, replacing the prior self-reporting framework. If fully enforced, these measures could slow or restrict silver exports, thereby reducing a significant source of supply to global inventories. 

Historically, Chinese metal exports have helped stabilize global supply chains for copper, zinc, and silver; any disruption would increase vulnerability in Western markets. While the recent focus has been on the “silver flood” replenishing LBMA inventories, tighter export controls from China, reciprocal measures from the U.S., or reduced metal flows between major exchanges could reintroduce liquidity stress and set the stage for another squeeze. Taken together, current trends point toward the possibility of future silver price spikes.

Footnotes