After the Jackson Hole Conference, Why Does Currency Depreciation Trading Stand the Test? Gold and Silver Pullbacks Are Just Fleeting Clouds

Recently, the precious metals market has experienced a remarkable shakeout—gold has fallen nearly 10%, and silver’s decline is approaching 27%. This sudden correction has prompted the market to reevaluate a trading logic that has been brewing since the Jackson Hole meeting: whether asset allocations based on currency devaluation expectations can withstand the test of time.

The Origin of Currency Devaluation Trading: What Changed at Jackson Hole

The August 2025 Jackson Hole meeting marked a turning point. Fed Chair Powell delivered a clear dovish signal—prioritizing labor market stability over inflation targets, hinting that the Fed would restart rate cuts. This seemingly subtle signal triggered a chain reaction in the markets.

Before this, the Fed was caught in a dilemma. On one hand, signs of labor market weakness had appeared; on the other, inflation remained above target. After cutting rates by 100 basis points in 2024 (including the controversial 50 basis points before the election), the Fed chose to hold steady in 2025. This increased political pressure.

Powell’s Jackson Hole speech was significant because it clearly conveyed a message: the Fed’s policy choices would alter the future direction of monetary policy. Reasonable market expectations suggest political influence may be at play behind this. Consequently, a trade based on the expectation that “money will be gradually diluted” emerged—precious metals, as traditional safe havens of value, began a new upward trend.

The Recent Pullback Was an Expected Adjustment

The sharp decline in precious metals earlier this week was indeed startling. Spot gold dropped nearly 10% in a single trading day, trading around $4,700 per ounce; spot silver fell even more sharply, approaching 27%, at about $83 per ounce. Such declines naturally raised doubts about whether the currency devaluation trade had broken down.

However, a deeper analysis of the price movements reveals that the situation is not as bleak as it appears. Silver’s nearly 27% drop merely brought its price back to mid-January levels, and gold’s roughly 10% decline only returned it to late-January levels. In other words, last week’s correction was just a partial retracement of recent gains, and the overall upward trend remains intact.

The market had anticipated this. Every major bull market has been accompanied by corrections and volatility. The correction in precious metals in October 2024 was quickly reversed, and the same is likely this time.

Policy Expectations Recast: Market Reaction to Kevin Warsh’s Nomination

The uncertainty over the Fed chair nomination was recently resolved. Trump’s nomination of Kevin Warsh as Fed Chair caused a new wave of market reactions. Initially, markets were confused—was Warsh hawkish or dovish?

The answer came from the futures market’s real response. After the official announcement of Warsh’s nomination, the yield on the 2-year U.S. Treasury fell, and futures markets clearly indicated expectations of more rate cuts—fundamentally supporting the continuation of the currency devaluation trade. Although December’s higher-than-expected producer price data briefly pushed yields up, the market ultimately reverted to a bearish dollar and bullish precious metals outlook.

From a political reality perspective, Warsh’s biggest nightmare might be repeating Powell’s fate—being publicly rebuked by the president. The only way to avoid this is to push forward with necessary rate cuts before the midterm elections. Under this logic, the prospect of rate cuts remains clear.

The Logic Established at Jackson Hole Continues to Play a Role

Looking back at the development since Jackson Hole, a clear chain of reasoning has emerged:

First, the structural dilemma faced by the Fed. High and rising public debt pushes long-term yields higher. Meanwhile, political pressure continues to mount. Whoever sits in the Fed chair will face demands from politics to cut rates and limit long-term yields.

Second, market expectations of debt monetization. Faced with massive public debt, the Fed may be forced to adopt looser monetary policy—cutting rates to indirectly support government financing. This expectation itself is a powerful driver of precious metals’ upward movement.

Third, technical and sentiment support. Although last week’s correction was large, it did not break the long-term upward trend. Such adjustments often clear out short-term optimists, building momentum for the next rally.

Outlook: The Currency Devaluation Trade Is Far from Over

Regardless of how the Fed’s leadership lineup shapes up, the trade based on currency devaluation and debt monetization still has a long way to go.

The policy signals from Jackson Hole have not changed due to recent volatility. Market expectations are continuously self-correcting and strengthening. The short-term pullback in precious metals offers an entry point for investors who may have been hesitant due to rapid gains.

Market expectations suggest that rebounds similar to the post-October correction could recur in future rallies. With macro fundamentals and policy directions unchanged, the currency devaluation trade initiated at Jackson Hole is likely to continue driving long-term gains in safe-haven assets like gold and silver.