So I had someone ask me about pressure on the metals with the DXY continuing its murder streak, and I decided to take a peak. I know, I know – dollar “strong” bad for metals. You then look back to about 2004-2005 and you can see that in that time, they have traveled up together in almost like a winding fashion.
This is just a snippet in time, and probably a coincidence. It doesn’t mean gold can’t break up or down, or doesn’t mean the DXY cannot go to 120 or higher. What it shows you is that over a period of time, the dollar getting stronger did not mean gold got weaker. That’s all.
But I’m sitting here in the August doldrums and wondering what report is coming out next. What event is coming that is going to shoot gold up. Obviously for those of you who know me, know I’m a silver whack job, but I need gold to kick in that door first. And it’s sitting on its hands.
Many were quick to point out the double top around $2080. They aren’t wrong. But how far down would it go? When does this pattern become satisfied and move on with its life? What you can potentially see was the Russian invasion of Ukraine which shot things much higher, and from there – it’s been digested and sold back off.
But there was a fear play in that which shot the yellow metal up. And with that, I thought of Taiwan and many other things which could potentially be catalysts. I’ll try and keep this short, as 60 hour work weeks have been the norm for me for quite some time now and I’m stealing an hour to do this. Here we go.
- China-Taiwan – I’m not a geopolitical expert, but I stayed in a Holiday Express Inn last night (it’s a joke on an American commercial). You can read dissertations on this, but the short story is China would probably want to take this without a shot fired. US needs Taiwan for trade, especially semi-conductors. There was a reason Pelosi was going there with the CHIPS bill going through congress.
- Russia – oil/gold – I was on the Luke Gromen coat tails several months back and did a video over lunch one day with RTD discussing this. Love that guy’s channel – got some really good in-depth questions being asked. At the time, Russia had offered 5,000 rubles for a gram of gold. While this was not the same as “pegging” it to gold, there was nuance there which allowed for that discussion to have front runners buy gold. This is very much still in play at some point.
- Russia – gas – While Europe sanctioned Russia over Ukraine, they didn’t really bother in securing an energy source first. I have heard reports that gas coming to Russia is 25x more expensive than last year. We could potentially see a lot of European businesses fail in the next 6-12 months as they cannot afford the energy to produce goods and services. While this might make their unemployment higher and send chaos into their markets – it could send the DXY higher. But the fear play in Europe could drive gold sales far higher.
- US Debt – I wrote a blog about a year ago about the “pin that pops the everything bubble“. Those buying treasuries right now may be front running the idea that inflation will come back down to 2% and buying at 2.6% might be a good deal for capital preservation in times of worry. No doubt the 9% inflation will come down as the YoY inflation rates decline. But do I see a 2% inflation again? The only way possible is with a depression of sort. These guys don’t even admit we are in a recession, so they will gaslight the population at some point into a “mild downturn” which could be a depression. IF the realization that inflation can’t really go below 5%, I could see bonds selling off for gold as the preferred risk off trade.
- US Debt – part 2 – the pivot. So I also wrote in January about – “Could they let it burn“? Idea was I was hearing everyone talking about how trapped the fed was. I wrote a piece thinking opposite as a mental exercise. I didn’t predict it, I just put it out there as a possibility. Well, what if the markets DO pivot? This could make gold soar. What if the pivot is off the table? Markets could get crushed – and we saw gold get killed in March 2020, but the FEAR play of market collapse could bring gold much higher.
- Russia/China – currency – I wrote above about the Russia gold/oil. But, what if Russia, China, and BRICS got their own currency basket. The DXY now is measured against the Europeans who haven’t figured out the economy is all about cheap energy. While that will be a painful lesson that will get all of them voted out, the DXY could soar. But how would the USD fair against a basket of currencies backed by commodities? Well, look at gold against the USD in the last 50 years – something like 55x for gold, depending on what week you look at. This would be the USD measured against their currency. It would continuously fall against commodities. As the announcement is made, you may have smart bastards front run this and get gold.
- BRICS+ commodities alliance – I am seeing how Russia wants to stand up a form of COMEX or the like in Moscow. I’m butchering this, but it’s a form of price-setting mechanism. While the COMEX I felt was a brilliant design to find globalist efficiency – what has happened is BRICS countries have had to produce these goods cheaper and cheaper due to what appears to be HFT algo selling which enriches a few thousand people in New York that summer at the Hamptons. I can see the West being cut out of distribution of raw materials IF these raw materials are offered at higher prices via Moscow. If you could see commodities costing a lot more in USD in the years to come, money will flow from tech to commodities in a hot minute.
- Exchanges – we are now seeing every few months new gold exchanges being stood up. Saudis, Shanghai years ago, now India – and I’ve seen others but cannot recall at the moment. These exchanges are PHYSICAL exchanges. If you want to get top dollar for your metals, why would you have your metals at the LBMA where the prices will always be suppressed? Why wouldn’t you move them to another exchange which might promise more legit pricing? I could see metals seriously being drained from Western Exchanges (good business for Michael!) and flow into these other exchanges. It may not be long before arbs are found in these moves and big money hits metals to buy what is left in the bottom of the vaults.
- Nickel – we saw what happened with the LME when a massive short got attacked. This guy was not selling $6b in nickel, he was speculating short. At literally any moment, we could see a move like this with silver. I believe it happened in January 2021 with a large ETF apparently lying by saying it added 110m oz. Everyone called bullshit. This ETF changed their prospectus in the middle of silver squeeze and was caught. A few months later, the LBMA said one of their members made a counting mistake by 100m oz. That moment should have been a nickel moment for silver. At these prices, I don’t know what spec out there is selling silver contracts. I don’t know any of the “primary” silver miners who are selling at $18.x silver. While this is silver – if silver launches to $40 in a month, gold will surely not be far behind.
- Hyperinflation – while Steve “get off my lawn” Hanke poo poos hyper inflation in the US, he’s correct – but the appearance of sustained high inflation and high prices can and should get the American public knowledgeable about the 1970s. We are at the time in the cycle where people are bolting jobs for higher paying jobs – thus putting higher wage prices in play here. The only way to stop the doom loop is for the Fed to crash the economy – and therefore CREATE the unemployment they are supposed to fight. IF we see 6-8% inflation prints month after month, it stands to reason a fear trade of gold catches a bid as more and more people see 100% inflation in Turkey, high inflation in Argentina, Venezuela, Lebanon, etc.
- Food crisis – so Ukraine may not have really planted much this year. Dubbed “the breadbasket of the world”. In this country, severe drought. Many yields would be down due to not only drought, but the high costs of fertilizer which would reduce the amount of food made. Friends of mine scoff – as this is a problem somewhere else. True, the immediate effects are the likes of Africa. But what happens is global. These places search for alternate sources and will bid up markets that have supply. I believe we may start to see some cracks in Sept, and couple it with the bullwhip effect of our janked up supply chains and whispers of shortages will start to creep into the minds of people – which can lead to hoarding – which leads to more food inflation costs.
- Energy crisis – we just have seen in this country how gas went from $4.9999999999 where I was to about $3.84 where I work 6 moons away. Congrats on depleting the strategic petroleum reserve and begging the Saudis, Iranians, and Venezuelans for more oil cheaper when you discourage production here. When they stop draining the SPR, the same problem will happen maybe a month later. Nat gas issues above will put pressure on the West to get cheaper energy. I believe these costs put a lot of pressure on production costs. Margins already slim, companies have to pass this on to the customer. More price inflation. But rolling blackouts could be a thing in Europe and parts of the US – and no one is really panicking until they have their power shut off for hours or days to ration it. This is a fear play for gold as well.
- QT pauses – we talk about the pivot above, but let’s discuss the $8.9T Fed balance sheet. With the Biden admin running high deficits, who is funding these notes? The Fed is unwinding their sheet and apparently wants the gov to cut spending. They laughed. So let’s play this out – another $300b comes up for auction and the Fed passes. Who the @#$%$ is buying this? This can send rates stupid high. The Chinese, the Saudis – everyone is selling our debt. While the Fed is talking about running these off in maturities, who is the safety net buying new debt to keep rates in check? At 8% inflation? What about the $4T in assets they have they can sell? Are you going to sell that over 2 decades, or run it off in 5 years? You flood the market with MBS and treasuries, you are going to spike those rates so high that a lot of companies on the verge of bankruptcy could not fund new debt. Watched DDB on Kitco yesterday and seems like a lot of companies are heading to the shitter the next 6 months. If the Fed’s primary responsibility is max unemployment, how can they then be the entity responsible for the unemployment? What I can see happen is a pause in rate raises if we hit the 7.x inflation number and a pause in reducing the balance sheet. There may be need for time for “markets to digest” the moves. Then inch it up more and reduce liquidity more later. That is the stagflation scenario if I’ve ever see it. Keep unemployment low by barely keeping companies from drowning CAN satisfy reducing inflation slowly AND keeping people employed. I believe dovish talk allows gold to catch a bid again.
- Dovish talk – I touched on this above, but any catalyst now for gold/silver could smash shorts into oblivion. I felt that’s what our last gold/silver moves were, and we might be looking at double bottoms coming with Jackson Hole coming up. I can tell you that while they are gaslighting the public into “all is well” the numbers aren’t backing that up. They literally are changing the definition of “recession” to make you feel all is ok.
- Budget – while all of this talk of QT is going on, Congress seems to want to keep writing out checks. Higher interest rates are going to show up in the budget and as you all know, they won’t stop spending at the debt limit. If/when the general public starts to realize that debt doesn’t matter much anymore to them, the dilution of currency is going to be in peoples’ minds.
- Onshoring inflation – As the BRICS+ gets stronger, I can see a day where crates of USD owned by a sheik is sent here for gold/silver to be sent back there. As the world tries to de-dollar, it’s not that simple. BUT – IF you are a BRICS+ nation, and IF you see a day where your currency basket is going to smash the USD to oblivion, would you not rush to exchange your USD for gold/silver, then real estate, farmland, and blue chip stocks? This may be inflation the Fed cannot control – onshoring of USD which bids everything up as BRICS+ gets out of the dollar and into something…ANYTHING of value. While this may play out over a decade and not weeks, these physical exchanges being stood up I believe may be the catalysts for the beginning of this.
- Mining issues – if you have high costs of fuel and miners are getting their asses handed to them, supply coming in is a lot less. Higher cost mines are put on care and maintenance. Metals prices going down puts more pressure on margins. Production decreases by a lot. AS these exchanges are being stood up? It stands to reason for me that we may start to see physical price pressures.
- COT – as we all have seen recently, BB are net long silver, and these guys tend not to lose out. Could they have been sellers this past week or two to take them net short again? At $19 silver with catalysts everywhere? Seems to me that one day, at one point, BB will push this long.
- Stock market go boom – I can see a time where the metals diverge from the performance of the stock markets. They have been trading in tandem for some time. Leading up to the March 2020 crash, I was all in metals, and my buddy was long all blue chip equities. Any day he killed it, I was crushed. Any day I killed it, he was crushed. I can see a day happening soon where this plays out again. And this can be anticipating a crash, just like Feb 2020.
- Big money move – IF you hear of Musk buying $1b in gold, or perhaps that woman Texas billionaire buying $50m in silver, saying it will probably end up closer to a billion at some point – these things will hit the news. The masses emulate their idols. When Joe Rogan comes out and talks about junk silver or the like, millions of people may follow suit. When PSLV gets a mammoth month and sucks all of the silver bars out of existence, you will have a vertical move on a vertical move.
- Palladium – I talked about Nickel above, as more of an acute move – but Palladium was a structural issue with the markets. Palladium went 5x and has sustained this range for 6 years. One can see how with the push with EVs (3x more silver than ICE vehicles, or about 5 oz) and solar (20g per solar panel) you could have a time where the massive industrial needs for silver completely wipe the map with the paper. I believe any sharp move in silver will move the dial in gold. But – industrial is a massive catalyst in this.
- Bankruptcies – I talked above about companies dying with higher borrowing rates. But you may start to see this weekly come Sept/Oct. Stock market tends to suck in Sept/Oct – and this is as gold buying picks up in the back portion of the year for holidays. Then, think about all of the people with ARMS for houses that are seeing massive mortgage payment jumps higher. Then consider that couple that just bought a house for $500k at 6% that are then both laid off from their jobs. One can see that if no pivot happens by October, a massive fear play can take place.
- Chinese real estate – this was under the Evergrande column, but it’s now expanded further out. Other real estate developers are going boom. Banks that made these loans are screwed, and the depositors in these banks have been turned into “shareholders” and cannot draw out their money. We just saw something tragic in Lebanon where a guy could not take his money out to pay for a surgery for his father. Masses in China have been protesting as much as they can without bad things happening. This may may the Yuan weaker against the dollar, but you might consider more wealthy Chinese seeing issues and buying more gold to convert their bank notes into tangible goods.
- Bank failures – Everyone kind of knows Deutsche bank is this in between Europe/USA bank with feet in both ponds and has been getting crushed. HSBC I once read had a big part in the Hong Kong real estate market which was mostly ARMs. US banks recording record failures. You know, the dollar is “strong” but what happens when some of these banks fail and try to “bail in” using your deposits? Don’t you think word of this might get out and people may want to convert USD into gold?
What catalysts do you have? I want to ask the Twitter community and I’m going to add a section below to this and re-release next week or so with your replies and comments. If you have something well-thought out and more than the standard Twitter response, send it to me at firstname.lastname@example.org
August 19, 2022 at 7:43 pm
A great list and I have a few more
1) Potential nuclear accident in Ukraine
2) ongoing issues with Iran re restarting the deal and nervousness of Israel -poss first strike against Iranian facilities leads to troubles in the straights of Hormuz – more oil/supply issues
3) Banking issues I would add worth a look at Credit Suisse and their default swap rates
4) Divisions in US between blue and red voters/states, Roe vs Wade, Trump search and fallout, what happens in the mid terms will people trust the outcome? if not then what happens next? see something like 1 in 5 US adults condone “justified” political violence