The precious metals markets made a big push last year through January before the Warsh nomination and the US started the Israeli war with Iran. That brought on a big correction that was due, in part, and then a bottoming pattern began with gold in the 4,500 to 4,000 range, with silver in the 55-to-70-dollar range. In this trading range, a good deal of oil/gold volatility has taken place over the summer months with the speculative part of the market moving between the two asset categories based on war-related news and the short-term Fed winds about interest rates, the dollar, and the CPI.
As a market sits in a range of prices, the next question becomes: will the price break higher or lower? Surely in a fiat-money environment, such a market will do one thing or another, but not stay in the range forever. All the while, individuals, institutions, and central banks are buying and selling within the range based on their short-term perceptions and their long run plans, but mostly on economic circumstances given the environment.
In last week’s episode, I gave you the six factors involved in the US government’s “Tangled Web”—a chaotic situation that I likened to France’s Mississippi Bubble. Here I will present six factors I am observing in the market’s coiling action. Coiling can have two different ramifications. If I coil my heavy 100-foot water hose, it won’t budge even if I turn the water on high. Filled with water, I am barely able to lift the whole thing off the ground. In contrast, when a snake coils, it prepares itself for an ultrafast, long-distant strike of its prey or adversary.
Here are those factors. They do not provide a comprehensive look at the overall market but do provide some insight not typically discussed:
- Silver and gold refining: China refines the majority of world silver supply and has imposed its right to restrict exports. Refining of precious metals in the US has been at full capacity, with bottlenecks and backlogs since the spiking prices last year as inherited silver holders sold off and recycling spiked. This represents an inflow of supply into the market and a redistribution from small to large holders and probably from the US to China.
- Prices: Day and Night: According to some calculations, I have seen the price of silver has been rather consistently lower in the futures market during market hours in the US and higher during market hours in Asia. The fact that this effect has been accumulating this year indicates support for the idea that metals are flowing east.
- Price psychology: Anecdotal evidence suggests that many American stackers are acting on price psychology and have stopped buying. When the price skyrockets, it’s normal not to buy and there is also a fear that prices will fall. This type of psychology is what I blame on my own failure to buy Berkshire Hathaway stock over time: Its price is always high and always seems to be going higher! Therefore, I failed to buy! In silver, this is a violation of stacker philosophy which dictates that you buy a smaller quantity weight when prices go higher, but you keep buying according to plan. The current price range of silver is half its all-time high.
- Precious Metals Mining: Like gold and silver, the mining company stocks are all lower and sluggish. Ownership of metals and mining companies is historically very low, at least in the US, compared to historical norms. Extreme all-time highs in tech stocks and indexes no doubt explain part of this for the US. Professionals call this “complacency.” The precious metals miners weighing in the S&P 500 is only 2/10ths of 1 percent. Miners are earning high incomes and lowering debt and thus have good balance sheets given their current cost and revenue structures (at this price). While there have been some big-ticket mergers and acquisitions in the sector, the overall level of M&A activity has been muted.
- Although there is no good long-term correlation between interest rates and precious metals, interest rates and Fed interest rate policy impacts speculators and shorter-term price fluctuations. We have had one recent rate hike from the Fed and at least one more in the works with little impact on prices. Are the hikes likely to defeat CPI inflation, or is the Fed just trying to keep up with underlying price inflation and the inflation premium in interest rates? Will rate cuts follow the cuts or are they really waiting for a crisis in government bonds and stocks for them to come to the rescue?
- While the Federal Reserve constantly stresses the importance of reaching the 2 percent target CPI-inflation—and that it is not engaged in quantitative easing—the Fed continues to buy and hold large amounts of short-term government securities (the type of debt the Treasury is issuing in vast amounts). The Fed continues to engage in an accommodative inflationary policy. The federal government continues to increase spending and borrowing. The deficit is expected to be $2T in 2026 through 2029 (6 percent of GDP) and move up to the $3+ trillion-dollar level.
You might want to review the Tangled Web episode to refresh your conviction of whether the US government is serious about addressing the problems it is causing or that they are content at playing games and making life easier for themselves and their elite supporters.
The six observations reviewed here tell us a great deal about the precious metals market and the overall economy, but the biggest revelation to the general public about the government in very recent times is their own admission of its often-flagrant manipulation of markets. Not just manipulation in terms of their participation or their planned activities, but manipulation of the sinister kind: Taking sides against some Americans in the interests of other favored Americans or of their own personal political or financial interests.
I have covered the manipulation issue in past episodes and other interviews, but looking more broadly it would include investing in certain companies, like Intel, providing inside information and informal guarantees to high-tech AI companies, providing “inside information” to supporters and donors, manipulating interest rates, manipulating currencies, intimidating the bond market, threatening domestic and foreign firms. There are also widespread allegations of government manipulations of futures markets in particular, but the government denies this. However, the financial industry has several types of specialized firms and trading strategies, that once “tickled” by actions from the Treasury or the Federal Reserve act in puppet like fashion to alter financial market conditions.
On Side B of this episode, we will be replaying recent interviews, including a rather spicy interview on Reinvent Money with Paul Buitink, where we tackle the Austrian perspective on AI, the direction of gold, and the War in the Persian Gulf. A sharp and focused interview on macro view and the details that matter for the individual on the Julia La Roche show follows.
