Gold: A Normal Pullback, Not a Broken Trend
Gold broke out at the end of August, peaked near $4,600, and sits around $4,300 today. That drop from about $4,500 to $4,300 is normal volatility. Prices never move in a straight line; an uptrend still has swings, and gold swings a lot.
The key fact is what gold did not do. It did not make a new low. It did not go back near the interim low of about $3,900 an ounce. That low was reached earlier this year after January's peak, when gold fell hard.
I called that bottom in advance using an idea from Jim Rogers, one of the greatest commodities traders: nothing goes to the moon without a 50% drawdown along the way. Gold fell from $1,900 in August 2011 to $1,050 in December 2015. Measured against a base of about $250 from 1999, that was a 50% drawdown, and Rogers' math landed within a few dollars. Applying the same idea to a new base near $1,800 and a high of $5,400, I predicted the bottom would form at or above $3,600. It came in at $3,900 - not as tight as the 2015 call, but the same range. Gold is now forming a new base and will rise well from here.
When the dollar price of gold moves around, that tells me more about the dollar than about gold. Gold is gold, element number 79; it just sits there. A moving price says the dollar's purchasing power and stability are shifting.
Higher rates cut both ways. The usual view: rates go up, gold pays no interest, so money market funds and Treasury securities look better and money leaves gold. True as far as it goes, but never the whole story. Higher cash yield does not erase geopolitical risk or the need for portfolio insurance. The real question for savers is whether cash yield makes up for money losing value.
The other supports have not changed. Central banks are still net buyers. China keeps buying. Russia has been selling a little because it needs dollars to finance its war and bridge the gap with sanctions. Geopolitical uncertainty plus the coming inflation from oil make me bullish. Gold is going higher.
Silver: Two Vectors Both Pointing Up
Silver looked like it wanted to break $70, then fell back to around $63. Anything near $60 looks like a buying opportunity given expanding deficits. A drop below $50 again is possible but not likely.
Silver is harder to read because it is both a precious metal and an industrial input. On the precious metal side it rides gold: gold up, silver up. Silver often lags, then catches up fast - quiet while gold climbs, then boom, like a horse finishing strong from the far turn.
A recession could cut industrial demand a bit, but recessions are selective; some industries hurt more than others. A recession is a normal cyclical event; a financial panic is a different thing. They can come together, as in 2008.
On the industrial side, silver goes into catalytic converters (tied to autos), electronics, and semiconductor production. Look at chip demand, Nvidia's backlog, and the hyperscaler data centers being built by Microsoft (MSFT), Anthropic, OpenAI, Apple (AAPL), Amazon (AMZN), and Meta (META). Not hundreds of billions but trillions of dollars are committed. If a site has to move because neighbors object, it still gets built. All of it uses silver in components, circuits, wires, and controls.
It may well be a bubble in some ways. But bubbles don't end on demand; spotting one does not tell you when it ends, and for now it is not over. Both vectors - precious metal and industrial - point up. Bullish on silver.
The Iran War: Tactical Wins, Strategic Loss
The war started around the last day of February. Within days I said Iran would win. That is no knock on US troops, sailors, marines, and pilots, who execute their orders well. Winning battles is not winning the war.
Iran's goals were modest: regime survival, not invading New Jersey. They achieved it. Trump talked about regime change; there was leadership change. Over 100 top religious, military, and political leaders were killed. It did not matter because they were replaced. The younger replacements, now in their 40s instead of their 70s or 80s, are more nationalistic, more radical, more committed. The regime is intact. It still holds its highly enriched uranium - buried to some extent, with enrichment ability greatly diminished but not eliminated, and rebuildable given time.
Iran is now in a stronger position because it is blocking the Strait of Hormuz. It has mobilized its proxies, the Houthis in Yemen, who have taken the entire coast along the Bab-el-Mandeb Strait, the choke point for the Red Sea. Yemen has a weak established government in the capital, Aden, backed by the Saudis, and the Houthis further north; they have been in civil war for 20 years or more. The Houthis are armed and funded by Iran.
Closing the Sea Lanes
You do not have to board or stop every vessel. Blow up a ship every couple of days and that is enough to keep traffic out. Captains, vessel owners, cargo owners, and insurers ask why they should be the one blown up today. So the Houthis have effectively closed the Red Sea and Iran the Strait of Hormuz. Close the Red Sea and you close the Suez Canal, because the Red Sea feeds it before reaching the Mediterranean.
This is a serious cut in marine cargo. These routes carry 20% of world oil exports and 20% of world LNG, plus sulfur and helium, which are needed as chemical precursors and in semiconductor production. Iran talked about this for 50 years but never did it. Now it is done and it is sticking. It will get worse, not better. You can bomb things, but you cannot bomb your way to victory, and bombing will not reopen Hormuz. Oil prices stay high.
The Real Oil Price: Near $150, Not $105
The headline oil price hides the stress. West Texas Intermediate and Brent futures are legit, but they settle in one or two months and are a weighted average - a sigma of speculators, hedgers, and some wishful thinking. That is not the price of a wet cargo on the spot market.
Call a broker and ask to buy a full tanker of oil now for delivery to your refinery next week. That market exists, and the price is about $140 a barrel, not $107.
Then there is the crack spread: the gap between the barrel equivalent of refined product - gasoline, kerosene, jet fuel, diesel - and crude oil. Normally about $20 a barrel. So with oil at $100, a barrel of diesel equivalent runs about $120. Right now the diesel barrel equivalent is about $180. Work backward: $180 minus the normal $20 spread implies oil at $160, close to the $140 wet-cargo price. Both signals say oil is really about $150 a barrel, not the $105 you see in Brent.
Diesel is the main fuel that drives every truck in the world - the transportation cost for everything you buy, whether from a store or delivered to your door. That is why diesel is so high, why the pump price is high, and why this inflation is already in the pipeline. It is extremely bullish for gold. There is no exit ramp, and the market will get there.
