Commodities weekly: Debasement fears the latest focus fuelling demand for gold and silver

Debasement – the slow leak in fiat confidence

Debasement, in its classical sense, refers to the dilution of a currency’s intrinsic value—when its issuer expands the supply of money or credit faster than the real economy can justify. The result is not necessarily inflation in the short run, but a gradual erosion of purchasing power and confidence in the unit itself. In modern markets, debasement takes the form of fiscal dominance: governments running persistent deficits while central banks accommodate them through balance-sheet expansion or premature rate cuts.

What makes this cycle different is the speed at which investors are internalising that erosion. The U.S. Treasury’s interest payments have overtaken annual defence spending, the Federal Reserve faces political scrutiny over its independence and developed-market debt ratios continue to climb despite record nominal GDP. In such an environment, capital begins to migrate from paper promises into scarce stores of value. That migration is visible in the behaviour of gold, silver, and platinum—all of which have significantly outperformed most other asset classes this year.

Debasement is not a conspiracy; it is arithmetic. When real yields are compressed by inflation expectations and policy inertia, investors simply search for assets whose value cannot be “printed.” Gold remains the default hedge against that slow leak of trust.

Gold and silver – the twin beneficiaries

Gold’s decisive move above USD 4,000 this week represents more than a round number—it marks a regime shift in how investors are allocating to tangible assets. ETF inflows have returned strongly after three years of net redemptions, while central-bank buying remains robust, led by emerging-market institutions diversifying reserves away from the dollar.

Momentum and fear-of-missing-out flows have accelerated as traders and institutions chase exposure to what increasingly looks like a structural repricing of gold relative to fiat benchmarks. Technically, the next major resistance sits in the USD 4,100–4,150 area, but the psychological effect of a “4-handle” is already reverberating through portfolios that had long been underweight the metal.

Silver, meanwhile, is displaying its usual high-beta character. It surged beyond USD 50 for the first time since 1980—when the Hunt brothers famously attempted to corner the market—before paring gains slightly. But beneath the volatility lies a deeper story of physical tightness.

Silver market stress reveals acute supply strain

The London silver cash market has entered a period of pronounced stress. One-month lease rates have spiked sharply amid surging demand from major global trading hubs, while available inventories remain limited. The tightness has caused a temporary dislocation between the normally stable COMEX futures and LBMA spot markets, with the latter trading at a rare USD 2 premium over the former.

Such basis dislocations are not unheard of, but the magnitude is notable. It underscores that physical demand—particularly from industrial users and investors in Asia—is running ahead of available supply. The imbalance hints at further upside potential since, ultimately, physical fundamentals dictate price direction. For now, demand is exceeding supply.

In practical terms, the silver squeeze has seen the gold-silver ratio drop below its 10-year average around 81 ounces of silver to one ounce of gold, suggestion silver is no longer cheap relative to gold. However, if we go back further, we find a 20-year average close to 70 which may support further outperformance. Whether or not this is the focus, the structural case remains strong given the combination of industrial demand—especially from solar panel manufacturers—and recurring supply deficits. The coming days will reveal whether this is third time lucky, or if USD 50 once again becomes a major ceiling. Much will depend on whether gold still has some mileage left before a long-overdue consolidation or even correction sets in.

Debasement and the “trust premium” in tangible assets

The renewed focus on debasement acts as a psychological accelerant for metals. It translates macro fear into micro scarcity. Investors are no longer only responding to inflation data but to a broader sense that fiat stability has become conditional on political choices. That perception—true or not—creates a “trust premium” for tangible assets.

In that sense, gold captures the macro bid, while silver represents the micro squeeze. Platinum and palladium continue to play supporting roles as alternative stores of value, though their fundamentals are more industrial than monetary. The combined precious-metals sub-index rose 2% this week, a year-to-date gain of 53%, leading the Bloomberg Commodity Total Return Index, which gained 0.4% while heading for the highest weekly close in three years. 

Crude oil – testing a fragile peace dividend

While metals attract flows for what they represent, crude oil remains mired in what it anticipates. The market spent the week trying to price what peace in the Middle East might mean for supply. Israel’s approval of a framework deal including hostage and prisoner releases has revived speculation that Houthi rebels could pause attacks in the Red Sea and that Iran might redirect focus inward, easing tensions.

If such a scenario materialises, shipping routes through the Suez Canal could gradually normalise, reducing freight premia and improving product flow efficiency. At the same time, a partial thaw in regional hostilities might allow Iranian crude and natural-gas exports to increase. Combined with aggressive production increases from eight OPEC+ this year, the supply side looks heavier into 2026.

This points to a period of softer prices before balances tighten again toward 2027. The logic is straightforward: as non-OPEC+ output growth decelerates and demand—particularly from aviation and petrochemicals—remains solid, inventories will begin to draw. But between now and then, markets must digest a potential peace-dividend overshoot. Brent trades near USD 64, while WTI holds above USD 60, both reflecting a market caught between geopolitical hope and structural caution. 

Copper – tightening reality

If precious metals tell the story of monetary debasement, copper reflects the industrial side of scarcity. The market’s structure has shifted notably in the last month, with the London Metal Exchange forward curve moving from contango into backwardation—a signal of tightening near-term availability. During the week prices climbed to just shy of USD 11,000 per tonne, only a whisker below the May 2024 record high at USD 11,100, before easing back as Chinese traders returned to work following their Golden Week holiday. 

This rally is grounded in fundamentals. The International Copper Study Group (ICSG) now projects the global refined copper market to swing from a surplus this year into a 150,000-ton deficit in 2026—a stark reversal from its April forecast of a 209,000-ton surplus. The revision stems from a series of mine disruptions, including at Indonesia’s Grasberg and the Democratic Republic of Congo’s Kamoa operations, which have curbed concentrate supply. Copper concentrate—the feedstock for smelters—has become increasingly scarce, driving treatment and refining charges lower and squeezing margins across the supply chain.

On the demand side, the ICSG expects global usage growth to slow to 2.1% in 2026, largely due to weaker appetite from China, which still accounts for about 58% of global refined copper consumption. Even so, the balance between sluggish demand growth and falling supply still points to tightening inventories.

Looking ahead

The central narrative now turns on whether debasement remains a self-reinforcing loop. If central banks are pressured to cut rates faster than inflation justifies, and fiscal authorities continue to run large deficits, the real yield anchor will stay low. That environment continues to reward tangible stores of value and penalise nominal ones.

For commodities, this means several things:

• Gold and silver should remain structurally supported even after short-term corrections. Any pullback toward USD 3,850–3,900 in gold would likely find strong buying interest.
• Energy may stay capped until evidence of supply discipline returns or global demand surprises to the upside.
• Copper and industrial metals could enter a more sustained upcycle once the deficit narrative is fully internalised and Chinese demand stabilises.

The risk, as always, lies in over-extrapolation. Monetary debasement does not automatically mean runaway inflation or endless rallies. But as long as investors question the credibility of fiat guardianship, the case for owning real assets remains compelling.