The price of gold has risen by more than 50 per cent so far this year.Arko Datta/Reuters
If you’ve set foot in a jewellery store or read the news lately, you might have noticed the price of gold has skyrocketed.
From the beginning of the year, gold has risen 52.4 per cent to US$3,998.60 per ounce from US$2,624.49.
What’s going on? Welcome to Wall Street’s latest obsession – the debasement trade.
The term debasement dates to a time when coins were made of physical gold and silver. Sometimes governments decide to reduce the amount of precious metal in their coins, replacing them with cheaper alternatives such as copper or nickel. This allows governments to create more physical coins.
Debasement typically happens when a country is facing economic decline and high deficits. Famous historical examples of currency debasement happened under Charlemagne, who presided over the Holy Roman Empire, and King Henry VIII, who ruled 16th-century England. In both cases, the effect was the same: The currency plunged in value and the price of the precious metal no longer used as much in the coins shot up.
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Today, the debasement trade is based on fears the U.S. government will devalue the U.S. greenback. President Donald Trump faces similar pressures that Charlemagne or King Henry VIII did: his government owes massive amounts of money, with U.S. debt surpassing US$38-trillion. According to the St. Louis Federal Reserve, the U.S. government paid US$1.16-trillion in interest in the second quarter of 2025 alone.
The easiest way to reduce this amount is to lower interest rates, which is why Mr. Trump has been insulting Federal Reserve Chair Jerome Powell with the nickname “Too Late Powell” and even trying to fire him. So far, he’s been unsuccessful, but Mr. Powell’s term is up in May, 2026, at which point Mr. Trump can appoint whoever he wants to the job.
If the U.S. does quickly lower interest rates, inflation will likely shoot up again. High inflation plus low interest rates will likely cause the U.S. dollar to devalue, and a devalued U.S. dollar means the price of gold will rise.
There’s a lot of interest right now in the debasement trade, and we can’t tell you whether it will work out or not, but if you want to participate, there are some measures you can take to keep your investments safe.
Don’t buy physical gold
Buying gold seems like a straightforward proposition: Walk into a bank and purchase some bullion, right?
Wrong. Physical gold is a pain to hold, because you can’t just stick it in your closet – someone could steal it or your house could burn down. It has to be locked away in a vault and insured, and all that costs money, effort and time.
Instead, you can buy gold through an ETF. Specifically, the SPDR Gold Trust ETF GLD-A, or the iShares Gold Trust ETF IAU-A. These funds hold gold bars in vaults in New York, Switzerland and London, and employ guards and security cameras to protect them. You simply buy shares in these ETFs from any brokerage account and voila – you now own gold without having to actually handle the metal yourself.
Don’t use leverage
If you’re going to buy gold, do it with cash. There are an alarming number of investors buying gold right now with borrowed money, and that’s a recipe for disaster.
When you buy any asset on margin, the lender can force you to sell the asset if it drops below a certain price. This is called a margin call.
Margin calls have wiped out many investors in the past who thought they were smarter than they actually were. Margin calls are also more likely when the underlying asset is volatile, and gold is super volatile right now. Just last week, gold experienced its biggest one-day selloff in four years, dropping 5.5 per cent in 24 hours.
Cash investors can shrug that off. But margin investors may be forced to sell and lock in their losses. Don’t be in the second group.
Limit your exposure
One of the biggest limitations of gold is that it doesn’t do anything.
Unlike a company, it doesn’t make money. Unlike a bond, it doesn’t pay interest. It’s just a shiny yellow metal.
This makes investing in gold speculative. To make money on a speculative investment, you have to buy low and sell higher. That makes gold riskier than many stocks, because you have to get your entry and exit points right.
So how do you make sure gold doesn’t blow up your net worth? By limiting your exposure.
Nobody should have more than 10 per cent of their investments in a speculative asset, so if you’re going to own gold, don’t exceed this limit. That way, even if you mess up, your retirement will never be seriously threatened.
Kristy Shen and Bryce Leung retired in their 30s and are authors of the bestselling book Quit Like a Millionaire.
Editor’s note: A previous version of the article incorrectly stated that Nero presided over the Holy Roman Empire. Charlemagne was its leader.
