“Downgrade trading” is back in vogue, but Deutsche Bank believes there are lessons for investors going back at least five centuries. Precious metals are off to a strong start this year following a rally in 2025, with gold surpassing the $5,000 level on Monday and silver rising more than 50% in 2026. This sparked a debate about the “degradation of trade,” which gained popularity as commodity prices soared. Discount trading involves investors betting that countries, including the United States, will intentionally devalue their currencies. These traders argue that this will happen if governments borrow more and print more money to ease their high debt burdens. Traders around the world have also been moving away from the dollar in recent days as the country adopted more protectionist trade policies under the second Trump administration. The view that land prices will fall has in turn boosted gold, silver and other assets. However, Deutsche Bank believes that a major currency devaluation is unlikely. Macro strategist Henry Allen based his decision on both history and current market signals. @GC.1 @SI.1 1Y Mountain @GC.1 vs. @SI.1 1-Year Chart In his Monday memo, Allen explained that the idea of disparagement is centuries, even millennia old. In 1544, Henry VIII devalued the currency to increase government spending. At the time, currency downgrading was done by reducing the amount of precious metals in the gold and silver coins used as currency and increasing the amount of cheaper base metals such as copper. However, printing more fiat currency today causes inflation, just as it makes coins cheaper to produce and increases overall production, which in turn causes inflation. By 1551, after Henry’s death, the depreciation policy was reversed as inflation angered the populace, and the devalued currency was finally removed from the money supply. The Collapse of the Roman Empire Early modern England was not the only country to exhibit the difficulties of decay. Allen writes that in AD 64, Roman Emperor Nero reduced the amount of silver in physical currency in order to increase revenue without raising taxes. This trend continued until silver accounted for only 5% of the physical currency, causing inflation. This, Allen writes, “was an important factor in the economic instability of the late Roman Empire.” Although separated by centuries, the two examples illustrate the lasting effects of currency devaluation. “The key lesson for both is that the fall did not begin as a sudden, gigantic shock,” Allen wrote. “It was a gradual process of reducing the precious metal content little by little, but it was repeated until inflation became rampant.” Allen argues that inflation is extremely unpopular and that governments will eventually try to avoid it rather than exploit it. Beyond Mr. Allen’s centuries-old example, the past five years of inflation have coincided with the electoral toppling of incumbent governments and ideologies of all stripes around the world. “We face strong political resistance given the unpopularity of inflation, and eliminating debt through inflation is harder than it looks,” he said. If history shows that deterioration leads to inflation and public backlash, Allen argued, those in this deal are therefore betting that countries can avoid similar turmoil if they continue to devalue their currencies. The gold and silver markets are behaving as if this decline will continue unabated. Allen believes a backlash against depravity is on the horizon, if not already. US10Y 1Y Mountain US10Y 1 Year Chart Allen said market signals outside of commodities indicate that global groundbreaking efforts are not here to stay. He pointed to 30-year inflation swaps in the U.S. and Europe, derivatives markets that are a key indicator of the trajectory of prices, and stable government bond yields, and concluded that an inflation spike does not seem imminent. That’s why Allen is confident that inflation will not rebound explosively, although the rest of the world is still above target, and warns that depressing trade may be based on the wrong assumptions.
