Global asset manager, Sprott, which specialises in precious metals and critical materials investments, says the debasement trade is one of the strongest global market themes in play today, and a key reason why metal prices are likely to continue rising.
In an article, Paul Wong and Jacob White from Sprott Asset Management say:
A year ago, the debasement trade was outside of the mainstream, but it has evolved into a structural allocation theme.
Let’s decode this financial lingo.
What is debasement?
Debasement refers to currency debasement, or a weakening in the purchasing power of a currency.
Purchasing power is being eroded in many developed nations right now because central banks are expanding the money supply.
They’re doing this by purchasing government bonds and keeping interest rates low, in order to support governments running large fiscal deficits, which are prevalent globally today.
Wong and White point out that US public debt surpassed $38 trillion in 2025, double the level of a decade ago, and few major economies have run a fiscal surplus since the early 2000s.
Here’s how all of this works in simplified terms.
Fiscal deficits and bonds
Governments running deficits — which means they are spending more than they are collecting in tax — issue new bonds to raise money to support their big spending programs.
The higher volume of bonds in the marketplace helps lower their yields, which ultimately lowers the cost to governments.
Central banks buy the bonds as a supportive measure. They don’t care about receiving a low yield because their primary purpose is to keep the financial system stable.
But investors certainly care, and, of course, they are less inclined to buy bonds when yields are low.
Meanwhile, the additional money circulating in the economy degrades the purchasing power of money, which weakens the currency, and can push up inflation.
Wong and White comment:
The pandemic-era policy mix of greater debt, deficits and stimulus has entrenched fiscal dominance as a structural regime.
In theory, central banks should act independently to maintain price stability. In practice, ballooning deficits and soaring interest expenses have tied policymakers’ hands.
Every rate hike amplifies the government’s debt-servicing burden, creating a feedback loop that incentivizes lower rates and liquidity injections, even when inflation remains above target.
By late 2025, this regime was evident across developed markets.
Large fiscal deficits and low bond and savings yields make gold and other hard assets more appealing as alternative stores of value and a hedge against inflation.
White and Wong say:
… the debasement trade is likely to accelerate, reinforcing the strategic case for hard assets in institutional portfolios.
This bodes well for metal prices.
Central banks buying gold
Central banks are key facilitators of the debasement trade today.
Experts say a structural shift is underway, as central banks around the world diversify their reserves away from the US dollar, whose purchasing power is under pressure, into gold.
As central banks have increased their gold holdings, they’ve pushed the gold price higher.
The gold price rose 27% in 2024, 65% in 2025, and is up 12.5% in the year-to-date, despite the recent rout.
This has encouraged both institutional and retail investors to follow suit, rotating out of cash and bonds and into hard assets such as gold, silver, and other select commodities.
They’re also buying mining shares, which is why ASX materials was the top performing sector last year, returning a staggering 36%.
60/40 portfolio losing relevance
In these circumstances, Sprott says traditional portfolio construction is undergoing a profound shift as traditional models lose relevance.
Traditional portfolios have a 60/40 construction, with 60% in growth assets like shares, and 40% in cash and other fixed-income assets.
This is the classic, default ‘balanced’ superannuation portfolio mix.
But Sprott says 60/40 is losing relevance given the eroded purchasing power of many currencies around the world.
Wong and White comment:
The 60/40 framework has broken down, with bonds no longer providing reliable hedging power as inflation becomes the secular driving force.
Volatility and the growing awareness of the debasement trade have prompted investors to allocate toward commodities.
Hard assets now serve as essential hedges against fiscal and monetary credibility shocks, geopolitical fragmentation and supply disruptions.
These are portfolio risks that equities and bonds cannot fully mitigate in a rapidly deglobalizing world.
The post Forget bonds, metals are now the ‘essential hedges’: experts appeared first on The Motley Fool Australia.
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