Loic Le Maho @LoicInv: " A third big drop..."

France

A third big drop in a row in precious metals since February. We are back where we were 2 weeks ago. This follows a very high PPI print this week : +1.4% MoM, the largest monthly increase since March 2022, putting annualized PPI at around 17%. YoY at 6.0%, also a multi-year high. I am now used to these initial reactions every time we have a hot inflation print : $GOLD and $SILVER get hammered while they are the two things which are the most bullish in this environment. All automated algo trading following the basic rule : high inflation print = more hawkish central banks = gold corrects. This was true in the 80s, but we have no one of Paul Volcker's caliber today and the debt is already too unsustainable to allow that. What should be done with double digit annualized PPI is hike rates by several hundred basis points. Unthinkable at this point as it would mean cutting a large portion of public spending overnight. Politically unsustainable, so it will not be done. What really matters is the REAL interest rate, the nominal one minus inflation. That one went massively down with this print, and it's not a 50 bp move that kills this kind of inflation. The pattern is always the same : Gold and Silver down a lot, then a big rally later on. Been there before. If the market had really priced in what the PM rally of the past 2 years is telling them, Gold would already be at 15,000 USD/ounce. Sounds crazy now, but this is where we are heading. The monetary collapse is just inevitable at this point. The debt is so high that even servicing normal interest rates is impossible. We are already in a self-reinforcing stagflation scenario, and the bull run on Gold and Silver has just begun. I had sold $SILVER around 84 earlier this week. I bought it back today around 80, 4 USD lower. The miners are getting hit much harder with big single-day moves at the same time. Trump being Trump, with the stock market going down and $OIL high, I expect that if this continues he will declare a huge "victory" in Iran and pull everything, especially if long-term yields explode and $TLT (iShares 20+ Year Treasury Bond ETF ) collapses. If the bond market crashes ($TLT down sharply), $SPX500 could lose 30% very quickly. Painful on the short term as no asset class will be protected in such a correlated downward move, but as always Gold and Silver will lose more than the rest and recover much more quickly. Same pattern as the last 25 years. Over that period, Gold which produces nothing has largely outperformed even the $NSDQ100. Because it's not about the market going up, it's about fiat currencies collapsing.

Not investment advice. The author may have financial interests in the mentioned instruments.