Global financial markets are witnessing a powerful shift as investors increasingly turn to alternative assets like Bitcoin and gold, driven by a "debasement trade" fueled by fiscal concerns and diverging central bank policies. This trend is unfolding against a backdrop of record-breaking Asian equity markets, buoyed by AI optimism, and significant corporate investments in AI infrastructure.
Gold surged to a fresh all-time high on Monday, breaking above $4,600 an ounce for the first time before settling slightly lower. Analysts like Christopher Louney, a gold strategist at RBC Capital Markets, see potential for further gains, with targets as high as $5,200 by year-end. "Gold serves as a catch-all, and a default hedge of last resort for fear and uncertainty," Louney stated.
Simultaneously, Bitcoin hovered near its record high set over the weekend, reinforcing its status as a digital safe haven. The rally in both assets is attributed to growing investor anxiety over the fiscal health of major economies. The Japanese yen tumbled after a pro-stimulus lawmaker was positioned to become the next prime minister, while the ongoing US government shutdown continues to pressure the US dollar.
"This political situations in these countries give you a reason to buy gold and Bitcoin as debasement hedges," said Chris Weston, head of research for Pepperstone Group.
The monetary policy landscape is also a key driver. The Federal Reserve is expected to continue cutting interest rates, with Bloomberg Economics predicting two more reductions by year-end after its initial cut last month. This contrasts sharply with Europe, where central banks are pausing their easing cycles to assess stubborn inflation. Furthermore, uncertainty surrounding the Fed's independence has grown due to a US Justice Department criminal investigation into Chair Jerome Powell, raising fears of political pressure to keep rates artificially low.
In Asia, markets rallied strongly, with Japan's Nikkei jumping 3.3% to record highs. This was supported by a weak yen and expectations of aggressive economic policies from Prime Minister Sanae Takaichi, who plans to call an early election. The AI boom continues to fuel corporate investment, exemplified by SK Hynix's announcement of a $12.9 billion investment to build a new advanced packaging plant to meet surging AI-related demand.
