Reflections after the Jackson Hole Meeting: Has the logic of currency devaluation trading truly changed?

The precious metals market has recently experienced a shocking short-term correction—gold fell about 10%, and silver nearly 27%. This plunge once led the market to question whether the long-term dollar depreciation trade, based on the Federal Reserve’s easing expectations, had come to an end. However, deeper analysis reveals that these short-term fluctuations actually mask a more important truth: under the policy signals released at the Jackson Hole meeting, the core logic of dollar depreciation remains unchanged, and this trade still has a long way to go.

How did the Jackson Hole meeting ignite the dollar depreciation trade?

The August 2025 Jackson Hole meeting marked a turning point. At this conference, Fed Chair Powell made a critical choice: prioritizing labor market stability over inflation suppression. This shift in policy focus was very clear—the Fed would resume rate cuts, even though inflation remained high at the time.

This decision was driven by profound practical considerations. Under pressure from massive public debt and political forces, the Fed was forced to shift its policy stance. After cutting rates by 100 basis points in 2024 (including the controversial pre-election 50 basis point cut), the Fed held steady early in 2025, but political pressure never ceased. The dovish tone of Powell’s speech at Jackson Hole was, in fact, a choice made amid political and economic difficulties—using relatively loose monetary policy to indirectly dilute the dollar’s purchasing power and ease the burden of enormous debt.

Once this expectation took hold, it quickly ignited the market. As a direct hedge against dollar depreciation, precious metals began to surge. This is the core logic of the so-called “dollar depreciation trade”: under the expectation of prolonged easing by the Fed, holding physical assets like gold and silver to hedge against potential fiat currency devaluation.

Can the recent sharp decline shake this logic?

The recent price correction has indeed been shocking. Gold retreated from its highs, and silver plunged nearly 27%. This adjustment once prompted speculation: has something changed in the Fed’s policy stance?

The answer is: no. The key evidence comes from the market’s own reaction. After Kevin Warsh was nominated as a Fed chair candidate, what was the market’s real response? Futures prices and Treasury yields clearly indicated expectations of more rate cuts. This suggests that even if leadership changes, the overall direction of easing policy remains intact.

Looking at the magnitude of the price decline further clarifies the situation. Gold’s roughly 10% drop only brought its price back to mid-January levels, and silver’s nearly 27% decline just returned it to early January prices. This means that even after such a sharp correction, precious metals prices are still well above the levels before the Jackson Hole meeting. Short-term technical corrections cannot fundamentally alter the medium- to long-term upward trend.

Political pressure and debt dilemmas: why is the easing trend hard to reverse?

Understanding this logic hinges on recognizing that the current predicament faced by the Fed is structural, not cyclical.

First, U.S. public debt is at historic highs and continues to rise. This is an unavoidable reality. Elevated debt levels push up long-term Treasury yields, further increasing political pressure on the Fed to act to control yields.

Second, political factors are becoming increasingly dominant in policy direction. Regardless of whether Powell, Warsh, or someone else becomes the next Fed chair, it’s difficult to completely escape political pressure. In fact, Warsh’s biggest risk would be clashing with the Trump administration like Powell did. To avoid such conflicts, the only solution is to keep rate cuts sufficiently large and to push forward quickly before mid-term elections.

This means that the easing expectations underpinning the dollar depreciation trade are rooted in structural factors that are hard to change. Short-term policy signals’ fluctuations cannot alter this fundamental logic.

The market’s true expectations: why will precious metals still surge?

The expectations formed after Jackson Hole remain solid because the market has gained a relatively clear understanding of the Fed’s long-term policy direction. This is not just fleeting optimism but a rational analysis based on debt pressures, political realities, and policy choices.

The best indicator is the 2-year U.S. Treasury yield. Even after Warsh’s nomination temporarily caused market adjustments, the downward trend in yields remained intact. This reflects the market’s belief: regardless of who leads the Fed, the logic of rate cuts will not change.

Therefore, although precious metals have recently experienced a sharp decline, the market generally expects prices to rebound quickly like they did after the October correction last year and continue upward. This recent plunge is merely a short-term fluctuation within the dollar depreciation trade’s development, and the core logic remains sound.

Conclusion: the new normal after Jackson Hole

Since the Jackson Hole meeting, the market has gone through phases of signal release, price surges, and short-term corrections. But regardless of these short-term fluctuations, a deeper reality is emerging: in the face of debt and political dilemmas, prolonged easing has become a structural trend rather than a temporary policy choice. As the main beneficiaries of this trend, precious metals’ long-term upward logic remains intact.

Those who see this recent plunge as a sign that the dollar depreciation trade has ended may be overly simplistic. A more realistic view is that this correction is just a buying opportunity, and the next surge could be just around the corner.