Gold now moves $100 in a single session, and days like that are coming more often. In the last 6 months there have been many $100 moves. The prediction of "one of these days we're going to see $100 moves in gold" has arrived.
Volatility and weak hands
Every rise gets followed by a sell-off. Fridays are often sell-off days because short sellers push the price down before the weekend, so they don't get hit with a margin call that costs them money. This extreme swinging shows a market full of lighter-weight players. When price rises, they rush in out of greed, afraid of missing more upside. When it falls, weak hands (paper hands) decide they were wrong and rush to sell. It is fear and greed, over and over. Long-term holders are still there and have not gone away, but a whole batch of new players jump in and out. Some will turn into long-term holders; many keep trading emotion.
People message asking, "Last week you said gold would go up and now it's down $20, what do I do?" The honest answer: no one knows what it does next week, next month, or next year. What matters is that 10 or 20 years from now, owning it will look smart.
Silver supply is thin
COMEX/CME warehouse levels have stabilized and are even creeping up slightly, but they sit at a fraction of the levels of a couple of years ago and remain very low. There is no net daily drain right now. Any disruption of silver supply would push those stocks lower.
Industrial demand for silver is rising fast, mainly from electronics. Mine supply has been falling for a decade and is barely changing - maybe up a little this year, but essentially flat. That leaves inflexible mine supply against rising consumption. The gap has been filled by recycled silver. Above-ground silver still exists, and every ounce is waiting for its price - a price that keeps shifting as holders change their minds. One seller aims for $70, then bumps the target to $80; another aims for $68, holds, then sells at $75. As silver gets used faster than it is mined, above-ground metal has to be pulled out, and that is done by a higher price. It won't move in a straight line. There will be strong rally days and strong decline days, and holders will keep asking why it is falling. Then, just when hope fades, it jumps $100 in a day and people expect the next day to repeat - which it usually doesn't. Patience is the tool.
A rally here can reflect real scarcity, not mania, because price mostly has to convince existing holders to give up metal.
How to buy
Buy a little, wait, buy a little more. It does not matter if the next purchase is higher or lower than today's. Some buy a bit, see it rise, then refuse to buy more because they could have paid less last week. Over a multi-year horizon that regret is meaningless. Whether you paid $4,000, $5,000, or even $6,000, decades from now the entry price won't matter.
The debt engine
Government debt worldwide is rising at a faster and faster pace - about 7% a year for US government debt, and 5 to 6% for money supply. As governments get poorer they borrow and spend, and someone on the other end gets richer. Those richer holders have to park the money somewhere, and right now the stock market is the favored place. Governments are creating new sovereign debt about seven times as fast as gold miners produce gold.
Small amounts are already drifting into gold. Because the gold market is much smaller than the stock market, only a tiny flow out of stocks or bonds into gold sends the price sharply higher. A full bond crisis is the point where gold shoots to the moon.
Two bond effects on gold
The bond market hits gold two ways. The dominant one now is yields. Gold is very sensitive to interest rates. If bonds fall, yields rise, and in the short run that hurts gold, because gold pays no income - people think they might as well sell gold and buy a government bond for the higher yield.
Longer term, falling bonds mean people are leaving bonds and hunting for an alternative, which helps gold. So a day-to-day rise in yields pushes gold down, but that is usually only days or weeks before gold turns up again. Once yields get too high for a government's liking, someone must step in to rescue the bond market - most likely a central bank.
Bonds around the world move in harmony. If one government bond market cracks - Japan, UK, Europe, or the USA - they all tend to fall together and rise together.
The rescue playbook
The UK gilts crisis a few years ago is the template. The government told the Bank of England to step in and save the gilts market and promised to cover any losses, unlimited. The market was heading into a death spiral tied to derivatives. The Bank of England stepped in, and it became orderly.
When a central bank saves a bond market, it prints electronic money. They won't call it quantitative easing this time - they'll pick another name - but it is money printing. They go into the market and buy the bonds that are pushing yields up, feeding fresh money to whoever sold. A bond seller who just dumped a bond won't buy another bond; in broad terms the choices are property, gold, or equities. If the equity market has stalled, that new money is unlikely to go there, so gold moves up the priority list for investment managers. The Netherlands central bank recently called gold central to the system.
Allocation math
Every portfolio manager should be asking how much gold to hold. Many barely have 5%, often much less. Some argue the right mix is 60/20/20 - 60% equities, 20% bonds, 20% gold. Most managers are nowhere near even 5%.
The global bond market is roughly $160 trillion. Newly mined gold runs about $550 billion a year. Move just 1% of bonds - about $1.6 trillion - into gold, and it would swallow three years of mine supply in one go if done in a single day. That is mathematically impossible from mine output alone; it would have to spread over three years. The only way to feed that demand is to pull metal out of existing holders by paying a higher price. That mechanism is exactly what drove gold from below $2,000 to above $5,000 earlier this year.
Stocks and the rotation signal
The stock market sits at an elevated level. Elevated does not mean a crash is coming - crashes do start from high levels, but high levels don't routinely produce crashes. What elevated levels do reliably signal is lower returns over the next decade. History shows high price-to-earnings ratios lead to weak future returns, and low ratios lead to strong future returns. Ratios are high now, so probable stock returns from here are low, which should push clear-thinking investors to diversify a bit into assets with better prospects.
The 1996 warning: stocks were also overvalued then, yet the market went on to triple from that already-stretched level. So a stall is not certain. Watch for the stock market failing to make new highs - a gradual decline where every rally fades. That is the moment money may rotate into gold.
For gold, watch two things. First, are central banks still buying? They have this year and did last year, and the trend points that way. Second, are central banks around the world cutting their holdings of US or foreign treasury bonds in favor of gold? If so, that pressures yields, which raises the odds of intervention, which raises the odds of money printing. When that happens - and it looks inevitable - gold goes ballistic. That is an opinion, not investment advice, but it is what has generally happened before and what is likely to happen again.
