Markets Edition: The Debasement Trade
KEY TAKEAWAYS
- The debasement trade, driven by fears that aggressive fiscal and monetary policy will devalue fiat currencies, is currently expressed almost exclusively through a relentless rally in gold, creating a uniquely narrow market focus
- This trade is based on a compelling narrative rather than confirmed fact, as other potential debasement assets falter and inflation expectations remain subdued, raising questions about the rally’s sustainability and conviction
- Given that the gold rally appears significantly stretched, we advise investors to carefully risk-manage long gold positions, as the asset may be vulnerable to a pullback in the near term
Dirk Willer, Citi’s Global Head of Macro Strategy and Asset Allocation, and Alex Saunders, Citi’s Head of Global Quant Macro Strategy, consider the debasement trade. The debasement trade is based on the fear that fiat currencies could be debased by aggressive fiscal and/or monetary policy, and has manifested in a relentless rally in gold. Dirk and Alex explore aspects of this phenomenon and offer advice for investors.
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Dirk Willer, Global Head of Macro Strategy and Asset Allocation, Citi
Dirk Willer is a Managing Director and Global Head of Macro Strategy and Asset Allocation. In this role, Dirk develops broad macro themes, related asset allocation views as well as trade ideas across a wide range of asset classes and geographies. Dirk also directs the Quant Macro Team. Prior to that, Dirk was the Global Head of Emerging Market Fixed Income and FX Strategy. He joined the firm in 2005 as the head of LatAm Local Market Strategy. Previously, Dirk worked at Omega Advisors and RHG Capital as their global macro strategist and portfolio manager. Dirk and his team have been ranked as the first team in the Institutional Investor survey for LatAm local strategy and the first or second team for LatAm sovereign credit strategy since 2017, as well as first in CEEMEA and Asia local strategy in 2019. Dirk is the lead author of “Trading Fixed Income and FX in Emerging Markets”, published by Wiley in 2020. Dirk holds a PhD and MSc in Economics from the London School of Economics. He did his undergraduate work at the University of St. Gallen in Switzerland.
Alex Saunders, Head of Global Quant Macro Strategy, Citi
Alex Saunders is a Director with Citi Research and heads the Quantitative Global Macro and Asset Allocation team. Prior to joining Citi in 2021 he spent more than 15 years on the buy side as a researcher and portfolio manager for quantitative investment strategies. His most recent position covered asset allocation and US credit for Itau Asset Management. Before that, he worked for QS Investors and Deutsche Asset Management across a variety of asset classes. Alex holds an MA degree in Economics from London Metropolitan University and a BSc from the University of Liverpool.
