Welcome back up, Jeremy Savron. The United States struck Iran again overnight. Oil flows through Hormuz remain disrupted, although tanker shuttling is helping more barrels escape. Yet take a look at this screen. I mean, crude lower, Brent is down more than one and a half percent, and then refined products are falling harder still, with gasoline down nearly two and a half percent, heating oil down a full three. Now that is not the reaction you'd expect when a Middle East conflict is escalating, and it's part of a mixed set of signals this morning. The economy grew more slowly than expected last quarter, but consumers spent more than forecasted. Inflation cooled month over month, and yet the 30-year treasury yield is sitting near a 19-year high. Also, stocks rebounding hard today after getting hammered yesterday. And gold also moved back above forty one hundred dollars on the spot side. Now, my next guest looks at all of that and reaches consensus well outside the Wall Street consensus. He thinks that oil is headed sharply lower, war or no war. He thinks that the Federal Reserve's next move is down, not up, and he also thinks that gold's high for the cycle is already behind us. He did call the $5,000 gold call before it got there. Then he turned around, called the top. He was right on timing. So obviously it's worth hearing how he gets there now. Stick with us, we'll get into it.
SPEAKER_01Kitco News in Focus with Jeremy Saffron.
SPEAKER_02Mike McGlone is senior commodity strategist at Bloomberg Intelligence. Uh Mike, a lot to unpack this morning. Always good to have you back.
SPEAKER_03It's great to be back, and thanks for having me back, Jeremy, because you become my go-to. When I'm looking for information and stuff, I go to you and listen to a lot of your interviews. And so I appreciate that.
SPEAKER_02No, I I appreciate that. And and you know, a lot of people, as we mentioned, were you know not happy about your top of the market call on uh past 5,000 on gold. You know, we aired it, you were correct on that. And I kind of wanted to to start with the Fed today before we get to the medals, because I mean, you know, it's interesting, and and right after uh that Fed meeting yesterday, you kind of wrote because your view sits well outside that current consensus, as I mentioned, that the Fed held. Obviously, three officials wanted a hike. The market's now assigning a greater risk to a September hike, and and your read was quoting you much ado about nothing. Now you said that the next move may be a series of 50 basis point cuts and and that the Fed will be following the stock market on the way down. Make the case. I mean, wh why is the next move lower and why is it you know half point steps?
SPEAKER_03Well, I had to put that out, partly because we're both in the media, and I like to say as a research strategist, I can make the write the best research on the planet. But I don't if I don't write out provocative headlines and catch you headlines, I don't get readers, it doesn't matter. I'm out of a job. So we have to sometimes, that's what you do. You have to sometimes accentuate accentuate things. And this whole Fed is much ado about nothing. There's not going to tighten. I think the next move from the Fed will be a series of 50 basis point cuts and a normal reversion cycle in the stock market, which means recession, but that's all that matters. Um otherwise, there's no reason for them to do anything. I mean, they can't really hike rates from Mr. Wars to hike rates would be a complete profile in courage, which I think is very unlikely. Now, it could happen, particularly as his term moves past Mr. Trump, but all we matten care about right now is what happens in the second half of the year. It's so profound. Um, but the bottom line from inflation's elevated, and the key thing I think the market's gonna look back from the future and say, duh, that was dumb. For the Fed to be cutting rates in an environment with stock market running two times GDP, and that's this is the last few years, um, and inflation above the target, and bond yields going up and telling them not to cut rates, well, just give me a look back from the future and said, Yeah, we're not gonna do that again. I think Warsh is saying it, but he's not really doing anything. And I think the simplest thing for the Warsh to understand, and I think him and Besson get really their ex-traders, is the season for volatility to pick up. I mean, it's end of July. The only thing you got when at the end of like May, you got to look forward, you have to look forward to the summer and the and the you know the morbid season. Now we're looking forward to the fall, which might mean a fall in prices in certain things like a stock market. And we have indications. I look at things like the Cosby, it was up 110% on the year, now it's up 30%. We've had pumps and dumps in versus all the metals, gold, silver, platinum, palladium, and bitcoin, and they're hovering down. Um to me, this the signals I'm seeing from markets, also with volatility in the stock market running near multi-decade lows versus the volatility you see in gold and crude oil and things like that. Um, just a little bit of reversion in that, I think, is what we have to look forward to. I think the Fed gets it, and I think they understand it's all they need is a little backup in the stock market, poof, everything's fine, inflation be alleviated, all that excessive spending and the wealth effect will be removed, and then they can think about easing. But right now, um, to hike, good luck, and it's not going to happen. But if inflation stays sticky, they might have to. And here's the key thing that's changed, Jeremy. This is how the world has changed, how the answers have changed. And that is in the past, for um, you know, president would pressure the Fed to ease rates to boost the economy, help them get elected. Now, what that does is create more inflation. It's the number one issue in the in the elections. Midterms are coming up, and inflation means incumbents are not getting elected.
SPEAKER_02Yeah, yeah. And you know, you you did connect that kind of the cost me correction, gold, bitcoin is kind of part of the same unwind. And the line that obviously stuck with me was it was you know following the stock market. That means the Fed is taking, well, I guess it isn't leading here, it's reacting. So what kind of has to happen first? Is it another 10% off equities? Is it 20%, or is it credit rather than the index that forces their hand?
SPEAKER_03Oh, it's always um, there's always peripheral things. Um, but the right now, the bottom line, the most significant 10 on a scale on a hundred-year basis, on a global basis for all post or you know, normal post-inflation deflation is U.S. stock market. We've already seen peaks and housing many places. I have a good friend in Florida real estate for decades, and his quote was if I could short Florida real estate, I would. And this is someone who bought a condo on credit in 2020. It's just the way the cycles work. Um, we're seeing it in you know, consumer sentiment and inflation and things like go um like this, I might like diesel and gasoline prices near multi-decade highs, and that's hurting consumers. But the bottom line is it's all that matters now. Everything is dependent on the stock market. What's consumer, what's driving consumer spending? Um, and you know, the 20% of the top 20% of you know income producers and income people in this country are doing quite well, but the rest of the economy is not doing so well. 55% of this of our um uh citizens are wage earners, they're not doing so great, and the rich people are doing better. Um, but to me that's the whole cycle. And this but the signals from markets are so profound, Jeremy. I mean, just sometimes you just can't. When you can say that gold is at a four-decade high versus a basket US treasures, look, that's kind of significant. When you can say gold 60-day volatility just reached the highest ever in the history of gold trading with the stock market going up, that's a bit of a problem. When you can say things like gold's volatility, annual volatility is trading at a multi-decade high, almost a 20-year high versus a stock market, that's a bit of a signal. And I just look through the second half of this year, stuff that I've been wrong on forever, that we're gonna have a backup in the stock market, um, might kick in. And here's what I look at. If we have just a whole hum year and stock market keeps advancing, say an SP 500 is up 10% or so in the year right now, and adds another 5%, eh, it's nothing, it's not a big trade. But if it starts dropping for a normal midterm year, the last two midterm years, 2018 and 2022, were the only years since 2008 the SP 500 total return was down. And if it drops for a normal cycle like that, the dominoes kick in. And I that's the key thing, Mike. I I so I'll end with this. I was at a panel, I was moderating a panel at the Global Waltz Conference in New York, I think that was in June. And um, the guy next to me was quite bullish copper. I get everybody's bullish copper. I get there's a good reason to be bullish copper, but everybody says the same thing. And I said, Well, you bullish the stock market, and he looks like my three heads. Well, if you're bullish copper, a stock market absolutely has to go up. If the history is a guide, because if stocks drop 10%, copper's dropping 20 or 30 percent um based on just normal correlations. A high metals are highly correlated to stocks right now.
SPEAKER_02Now, you know, we're talking about inflation as well, and I and I kind of want to put both sides of this to you because the genuine the data seems like it's genuinely split. I mean, your side first, the core inflation rose just over a tenth of a percent in June, according to the Commerce Department. The mildest month since March of last year. And if that one month pace were kind of sustained, it would annualize to about 1.6% below the Fed's target. But then look further back in the same report. I mean, the six month pace is running 3.8%, and that's worse than it was a year ago. The 12 month is is 3.3. So the latest uh month says inflation momentum cooled sharply, but the longer trend says that the problem is still there. I mean, which one is the signal? Which one is the noise?
SPEAKER_03Oh, there's so much noise, and this is where I think I keep further backing off from the market a little bit, looking at a uh top-down view. Inflation simplistically is probably peaked. I'm gonna put that in my headline for my my um August outlook for commodities. I think inflation's peaked at 4.2%. That's CPI. I think crude oil's peaked at 120. And the key head thing I have in the headline for next year, I fully expect CPI can easily get to 0% and crude oil can get to near 40 on a normal cycle. There's one key prerequisite for that, just to say a 20% drop down drop in SB 500 that stays down, or even a 10% drop from here now. That's the way things usually work. We're so overdue for a post-inflation deflation cycle. And take a think of what's happened with crude oil and and CPI. They both kind of peaked from lower highs, lower plateaus since the peak in 2008. Now inflation obviously had a little run and to and uh when Russia invaded Ukraine, and they've made lower lows since. Has that trend stopped? But that's also happened with stock market cap to GDP reaching the highest on a year in basis since 1928, and most significantly stock market cap to public debt reading reaching 2.1 X or so. That's the highest since 2007. That's part of the reason bond yields are the highest since 2007, which is a major pressure for all non-income producing assets and commodities, most notably precious metals.
SPEAKER_02Yeah, I want to talk to you about the bond market. Before we do that, stick on oil there, because obviously that call on oil, the timing is what stands out. I mean, as I mentioned overnight, obviously the U.S. hit dozens of Iranian military targets, around uh strikes reached Jordan in Kuwait. Um I think drones also struck uh two natural gas vessels in an Egyptian port. Now, oil flows through Hormuz remain below pre-war levels, but tanker shuttling has picked up, and bypass pipelines are are moving more barrels out of the Gulf than ever before. I mean, you just talked a little bit about Brent with Wax Texas in the low eighties. You know, you're you're talking about the risk into year-end is kind of energy and deflation. Just get into that a little bit much more here, because I mean much of the market is positioned for an oil, or I guess we could call it a supply shock. I mean, you're calling for that. Take me through it.
SPEAKER_03Well, this is where I really enjoy learning from many people like you and some of my colleagues in the my energy desk who dig into the weeds of the energy market. I look in the top down, there is a 10 on a one to ten scale in energy market. That's one of the most significant tens I've ever seen. Is what is the motivation of the world's most um of the leader of the world's most significant energy producer and a net exporter, not just of energy, of corn, soybeans, wheat, grains, uh, liquid fuels, biofuels, um, into the midterms. The person who actually initiated this war in Iran. Iran is becoming um OPEC was becoming redundant before this war. The Western, the price-making status in energy has shifted over to the Western hemisphere, the U.S. in the middle, Canada to Argentina is becoming a bit of a drill at will, and they just had the best incentive since the Russians' invasion of Ukraine to sell and produce at a profit. Yes, we're in a bit of a nuances right now, but there is a reason, as we speak right now, the price of WT crude oil is $84 a barrel. That was first traded in 2007. Now we have things like distillates, diesel, and gasoline running their multi-decade highs. That's a big problem. Mr. Trump absolutely has to get those down by midterms. And if he says he doesn't care, you know he cares. I just love that nuance, having followed politicians for decades. Um, but that's the that's the 10. Now, how he figures that out, I don't know. This quagmar of a war that was supposed to be done in two weeks with unconditional surrender, which I'm sure is what he was expecting, that's his problem. He'll figure it out. But the bottom line is he needs lower energy prices, and the key thing always remember about energy, it's one of the most auto-correlated sectors of commodities. It's also what I like to point out as the key thing people miss sometimes, and they really um accelerated in 2022, is that process, that force of autocorrelation in commodities is one of the most significant increase and incremental increase in force in commodities. We proved that rapidly advancing technology and demographics. When you get a pump in price, you incentivize more supply, cut the demand, prices go back down. Why is the price of soybeans we see in a screen right now the same as first traded in 1973? That's $12.90. Because we can produce more with less every day. So that's my macro for commodities. So I'm I'm and for crude oil. I'll I'll put numbers on it. Right down at $84 a barrel. I think the high for the year I called it earlier is $120. We could get near there, but imagine if we do. What then would that just, you know, would be its own worst enemy and then would just be down later. I fully expect crude oil to gravitate towards 70. 70 has been the absolute high value price for 20 years. So it's basically the apex of the bell curve, and then do a normal rotation back down towards 40. Why is that not profound? Because the average cost of production, the world's largest producer, is $55 a barrel. That's the US. We can produce more with less. We have a major surplus with Canada approaching in two years, if prices don't go down, that's going to approach 10 million barrels a day of crude oil and liquid fuels. In 2008, it was a deficit of the opposite. See where cycles are going? OPEC matters, but the rest of the world's having a major problem. And also, I'll end, I think the key thing to end with is what's happening in China. They're curtailing demand probably. Why? Because what do we know with 60% of sales in automobile sales are EVs in 2022 before the Russians' invasion of Ukraine? That was closer to 10%. See the shift?
SPEAKER_02Yeah, yeah. And you know, we could talk about that. I I want to kind of I would we're at 17 minutes, but this is why I could talk to you for so many hours, Mike, is because I I don't I'm not even done with the oil story yet. Because when you say power shifted, do you mean OPEC, you know, the financial markets can now set the price more than the production quotas do? And secondly, I mean, at $70 oil, who's forced to respond first? Is it U.S. shale producers or are these OPEC members defending their budgets?
SPEAKER_03Well, all the above. So that's the key thing. It's not one or the other. First of all, markets are much more financialized. Let's go there right now. If you're bullish crude oil, or if you're bullish copper, or even broad metals, most commodities, you have to have the stock market go up unless there's some kind of oil shock. It's just the way things are. We're so correlated now, like I might I might have mentioned earlier. The 60-day correlation between the Bloomberg All metals index and the SP 500 is almost the highest in that index history, and it's only been around 30 years. So then let's look over to supply and demand. I'll give you one example. Price maker status in U.S. soy and soybeans has shifted from the U.S. to Brazil. They're almost approaching 50% more than the U.S. production. Ten years ago it was the same production. That's the incremental supplier. Price maker status from oil has shifted away from OPEC towards the Western Hemisphere to the U.S., formerly the largest demand pool, and now a major exporter and pushing almost the same amount of exports that China was importing last year before the uh before the invasion of Iran. So that's the shift financially and fundamentally. And the bottom line is my EV is 12 years old.
SPEAKER_02Yeah, yeah. Okay, well, let's talk about refined products because they're showing more weakness too. I mean, gasoline down nearly 2.5%, heating down full three, both falling faster than crude itself. I mean, here's what makes that remarkable. Russia just extended, I saw this this morning, just extended its diesel and glass gasoline export bands into 2027. So, I mean, that's a natural restriction on exactly those products. They fell anyway, harder than crude. So is demand weakness showing up first in in the products consumers actually use?
SPEAKER_03No, I understand demand weakness hasn't been showing up too much. You've seen it in consumer data, um, but it will. The key thing is that's there's different markets now, distillates and underlying crude oil. So crude oil, I'm much more bare bearish on than distillates, but the key theme though for distillates and most nobody the number one that matters from an election standpoint, and there's election in November, and we have a very political president, is gasoline. Now, U.S. gasoline price at $4.11. That was my key trigger, Jeremy, in 2008. When it pumped up $4 to just sell more, short the stock market and buy more treasury bonds. Now, so far that hasn't worked this year. Not but right about the same price as it peaked in 2008, which shows you how you know how blessed we are in this country with you know prices, but it's autocorrelation. That to me is gonna be the key one. And if the best way to really hurt consumer sentiment is have gasoline go up and stocks go down. Now, so far stocks are doing well. But that's a key thing. There's major incentive to produce, a lot of incentive to export, but what's the incentive we get towards elections? You've got to get prices lower in this country, and it's just a question of how Mr. Trump's gonna figure out how to do that.
SPEAKER_02You know, to your point, Mike, I I just saw it come over the your terminal actually, and and BP is cutting 700 jobs while warning about oil oversupply in the middle of a war disrupting the oil's most important shipping route. So is that the clearest kind of corporate evidence yet for your $70 call?
SPEAKER_03Well, add to that, uh BW's cutting um cutting um employees. BMW just announced layoffs. Why? Because they're facing major headwinds from the significant paradigm shift of rapidly advancing technology from China. Just the fact that we have 100% tariffs on these awesome EVs coming out of China is a good reason. There's a problem globally. I mean, the rest of the world who doesn't, you know, not like Japan or Germany or the US, who doesn't, and not major manufacturers of automobiles saying, thank you very much, we'll take those. And by the way, they're so much more cost-effective. And just give those 10 years. I mean, where's that going? Just I mean, I own an EV, and it's just amazing how much cheaper they are to run. There's only 500 moving parts, but it's that's the paradigm shift that I think is going to continue. And it's not just automobiles, it's renewables. Um, and when you get prices spikes like this, it just incentivizes human invention. I think that's what's happening, and that's why it's just hard to say bullish broad commodities, except for metals. The problem is metals probably just peaked too.
SPEAKER_02I gotta ask you before we go to metals. I mean, there's a piece that uh most people are skipping here, and it's on the demand side. I mean, China grew 4.3% last quarter below Beijing's owed target. The the Paul uh the Polity Bureau met and passed, I guess, a major new stimulus. Their 10-year yield is down towards 1.7%. So, I mean, that's the bondmarking pricing weakness, not recovery. Is China, you know, a quiet reason your deflation call works? If demand from the world's biggest crude importer is weakening, I mean, how long can that war premium really hold, right?
SPEAKER_03So, in the full um, yes, I've been pointing that one out a little too long, along. It hasn't worked yet, but that China tenure note right now about 1.7% versus the U.S. tenure note, almost 300 basis points higher, second largest economy in the world. Their debt to GDP is running 300%, their money supply is running almost two times the US, yet there's tenure note. It's a severe deflationary force. We've seen this before in Japan. Now, Japan's starting to come out of that, but this to me is the number one factor I think is going to matter by the end of the year. And we just had a great test. Had this major and you know, most significant disruption of energy flows in the world, and crude oil is running right about where it was in 2007. Why is that? What happened? We saw what happened in China. They were importing 11 million barrels or 11 to 12 million barrels for about four to five years. And last year didn't make so much sense to me, but now it does. Clear evidence they were um topping off their SPR, Supreme Petroleum Reserves, and people like Louis Vincent Gabb said it might be 1.8 billion barrels. That's like what, five times the US or maybe even more than that? And it makes sense, but now they're actually it's just accelerating. They now they have a better use case for all their massive supply of renewables and EVs and accelerate that process of shifting to you know non-petroleum consumption versus what they have a they have a deficit up versus a surplus of their technology.
SPEAKER_02Now, I want to talk a little bit about um the bonds. Obviously, that's making headlines today, but I don't want it to become, you know, a pure rates conversation. We'll land on commodities at the end for the audience, but let's get to the part of kind of your work that's being tested. I mean, your argument has been the treasury bonds are taking the safe haven uh job kind of back from gold, right? And that the Fed uh Fed serious about inflation could end a six-year run of gold beating on bonds. Then look what just happened. I mean, sold off stocks yesterday, the Fed held, risk assets were kind of under pressure across the board, investors dumped the 30-year pushing its yield back to that 19 high. Uh inflation expectations went up, not down. You're talking about the market here, but I mean, it is the most since November of 2024. Uh, the long bond didn't behave like a safe haven on the day that it should have tested your thesis. What has it changed for that call to work?
SPEAKER_03Um, the number one thing for my call that has been wrong for almost three years now and bond yields to be the next big trade. That's my main call for this year, is the stock market has to go down. So I look at that long bond as we speak, speak 5.21%. That's a huge head-wind for any non-income producing asset, starting from Bitcoin to gold. There's no reason. I mean, you you got to have some major inflationary forces to make those uh viable versus a 5% long bond in a you know U.S. treasuries. But the the bottom line is the number one source for inflation is the U.S. stock market. It's still up almost 10% on the year. That's if it drops 10%, that's 25% the GDP, the most on a year basis since 2008. So I look at treasury bonds right now as a basically a put on the stock market with positive carry and no time decay. Put, as you know, in my uh experience trading puts, I oftentimes will be right on the market. My puts will expire before I get a chance to be right, because I'll be wrong first. But to me, that's the way they are right now. And the bottom line is this second half of the year will be the major determinant. I'm looking at it, it's gonna be either a whole hum year, stocks going up, which means you're probably not gonna make much more in treasury bonds. If the stocks drop, that five point two percent, I think it's gonna drop towards four percent in a heartbeat. And if stocks stay down, it's just a it's a major cycle kicking in very similar to what we had in two thousand seven.
SPEAKER_02Um as the correlation is crazy, huh?
SPEAKER_03Yeah, so that's the key thing I want to point out too is when people I love when people point out is the um unstoppable deficit spending. It's not just in the US, you see it picking up in the rest of the world, and most of we have it very high in in China and picking up in Germany and Europe because of defense spending. But I like to point out total U.S. debt in this country is between $39 and $40 trillion. Sure, that's unstoppable. I get it. But U.S. stock market cap is over $80 trillion. That's two times. It's the highest since 2007. U.S. debt in this country, that liability is minuscule versus that top asset that's real time in the stock market at two times that. That's the last time we had bond yields at these levels. So I'm still very comfortable with that call. It's on the back of selling gold and selling Bitcoin at really stupid levels that just got too expensive and hiding out in Treasury. So that's still my main theme for this year. That part's been wrong. You haven't lost a lot, but that's where I think this next second half is going to matter, Jeremy. If we start trickling down in the stock market, particularly later in the year, you do it, um, that'll accelerate the trend for it could be certainly for a couple of years, but certainly next year. And that's where I'm thinking you look at you always look at iterations, okay. If this and that. So if stocks stay strong, okay, fine. Fed might have to tighten, or kind of as a whole hum, boring market. But if we start ticking down the stock market, which is normal in this type of cycle, that's a big trade. And treasuries will be the place to start. And that's what I think we're seeing warnings from things like Bitcoin going down and gold failing, and even the Cosby rolling overs. Um it's only July. And we even got through August yet. Just wait till we get through till closer to the midterms. This is going to be a fun quarter. I and so bottom line, I'll end with this. I think it's going to be a trading year of a lifetime. Um, maybe some in the 2008. It's just getting started. And some of the key themes have already happened. Bitcoin's broken down, uh, silver's broken down, gold's broken down after key rallies. And then two main things I've gotten wrong so far is copper. I didn't think it'd stay much above $6 a pound. And I didn't think that think that bond yield will stay much above $5%. So far, we'll see how we this works out towards the end of the year.
SPEAKER_02You know, I was going to ask you, I mean, take it back to the commodity complex for me, because if the long end stays up here, what does that actually do? I mean, producers obviously borrow to drill and to build mines, so financing gets more expensive. But which commodity kind of feels uh a five percent thirty year first?
SPEAKER_03Oh, you start with the gold, um, because gold is the most sensitive to its alternative treasuries. And that's why I like to compare. There's another measure on the terminal we have a bond, a long treasury bond index. We go back to 1973 with that. If you divide that by gold, bonds are the cheapest versus gold since about 1985. That's price. Like, okay, well, I'll look at that. And also we hear everybody knows the fundamentals. Central banks buying a World Gold Council just had the report today. I get it. We all know stuff we wrote about five years ago, and I was really bullish. Gold to break above 2000, which took about three years. That's what I was wrong on that one. That was a pain to get the gain. But then we got to such extreme levels. Gold in Q1 reached its highest ever versus the Bloomberg Commodity Index. Now, that data we go back to clearly since 1975 when futures started trading gold futures. That was a bit extreme. It got to um silver and in silver got to its highest ever versus copper and crude okay. Okay, that was a bit extreme. And now we're in the hangover. And the key question is typically when you get this stretched, and versus your own moving averages. But the king also last year's rally in gold, Jeremy's, was so profound. I got lucky in that one, but so scary to me because we have never rallied at such high velocity, the best year since 1979, in a disinflationary environment. PPI CPI peaked there, what was it, 15%, 13% or so in 1980 and gold ran, and now it's running 3.5%. To me, this is that was gold warning us, and there's one game left in the stock market, it's the only game left in town. And when that rolls over eventually, if if it happens by the end of this year, that's a big trade kicking in. I think gold's warning. And that's the problem now, though. Gold's 60-day correlation to the SP 500 is the highest ever in upmarket for an SP 500. It's telling you if stocks go down, everything's falling because gold might drop a little less. The problem is it trades currently two times the volatility SP 500. That's an annual basis, and typically a store value trading two times the value of beta is an oxymoron.
SPEAKER_02What do you think? I mean, when you see a day like yesterday, where I mean, we you know, we started the day before the Fed down, ended the day up. It was a little bit iffy there. But the, you know, I mean, look at the tape today. Gold's reclaimed that 4,100 traded as high as 4,122. Silver's up 2%, platinum approaching 3%, palladium up roughly 4%. I mean, that is a broad strength across the precious metals complex. What would gold need to do from here to kind of convince you this is more than a temporary rebound?
SPEAKER_03I don't know, but we have to be very careful about day trading in quiet markets in July, even August, and making much out of much to do about nothing. This is the next trader. I just remember sometimes you have to step back, yeah, let the traders knock it around. I used to be one of those. I used to have hair. Um, but maybe gold can get lucky enough to stay above its 200-day moving average around four dollars of 4,400, 4,500 and mate, Mike. But it looks to me very much, the whole industrial precious metals complex looks very much like cryptos did last year. And I really enjoyed jumping on the gold force and getting off cryptos. Yeah, I was early, but pointing out gold precious metals are basically a couple doves. There's really four gold, silver, platinum, platinum, and gold is beta for the whole metal sector, which there's only really 10 that matter. And then there's Bitcoin and cryptos, there's millions of those, and Bitcoin's beta, but there's an unlimited supply. They're like a bunch of pigeons. Um, but they're all rolling over, they all were alternatives, and they all face one key thing. First of all, um competition from 5% and long bond and treasuries and the Fed potentially, you know, and 4% in the two, you know. And they just went up too much. So to me, those are enduring bear markets are getting started. Gold's 200-day movement is just starting to roll over. Cryptos are clearing a bear market, but the most significant rallies happen in bear markets. They have to rip your face off. And um, that's why I like to just sit back and say, you know, if I right now I'm still bearish gold, I'll probably put out a really bearish comment if we get to near the 200-day movement average and give us a bounce. But here's the way I look at the way these markets usually work. Typically, almost always, when you rally at this velocity, particularly in silver, it shifts what we're demanding deficits into surpluses. People always forget that. Remember, supply, demand, and price. It's all the same model. Price just moved exponentially. And you put in peaks that last for decades. I think that's already happened in cryptos. I think it's already happened in precious metals. And the next key one is copper. That's where everything for me and Q. If copper goes down, that's the dominoes tumbling because copper is the most highly correlated commodity to the SP 500.
SPEAKER_02Has anything what's what surprised you the most here? I mean, you know, obviously during Wednesday's sell-off, just yesterday, I mean, gold silver kind of rallied while equities were falling apart. I mean, that was kind of like gold acting like a safe haven. Did that surprise you?
SPEAKER_03No. Um, gold has been hovering at $4,000 an ounce for how long? A couple months now? $4,100 is nothing. Like I said, it's got to get at least above $4,500 just to show potential. It's not a beer market. And then what's that going to do? Is it going to bring in more sellers? The most the thing that surprised me the most was the spike in bond yields. Obviously, because that's my bias that yields are eventually going to go down. Wrong so far, but that's the key thing, lesson you learn about markets. Sometimes you have to take the most pain for the most gain. Gold was my great example. I mean, I was bullish gold in the year 2020, 21, 22, and 23. And finally, at the beginning of 24, I quoted Roger Babson, who from 1929, I would quoted the opposite of what he says. I will tell you what I told you last year and the year before, the stock market's going down. So I just quoted him. I will tell you what I told you for the last three years, gold's going up. Got that trade and got right. But it didn't. It's done. You have to. That's the hardest thing in the market is to point out is when you move exponentially like this, and people say you're technical. I'm like, no, supply, demand, price. When price moves that much, it shifts supply and demand with a lag. And that's where I think we'd be lucky. So I think what I fully expect is gold shouldn't make it difficult, shouldn't make it easy. I mean, if it goes back to $3,000 an ounce before it goes to $5,000, that would be ideal, might give you a good chance to buy it. If something shifts exponentially, that gives me a chance, a signal to be bullish gold. The problem is right now at a four decade um high versus treasuries. That would be I can't get really bullish unless it gives a you know something like a backup. But if it goes about to $5,000 first, I might have to put out a short signal, like I did in I did some of that in silver and I did some of that in Bitcoin. Gold's just hard to signal short because it used to be a store value, but right now its status is a highly volatile speculative risk asset, trading at two times the volatility of the stock market.
SPEAKER_02Let's do the rest of your world just for a second here, Mike. I mean, because you covered the whole complex and most interviews never leave gold, but wheat is up more than two percent. You talked about corn, a little bit about soybeans, cotton up, um, while the energy group is is is red. And and I'm curious, you know, where is kind of the most mispriced thing on your board today? Not the biggest story, but the most mispriced.
SPEAKER_03Natural gas. Misspriced as far as one commodity I think is worthy of uh exploring purchases. January natural gas peaked at 565 when um in in uh in March after the uh the US um invasion uh attack on uh and in Iran and after the coldest winter in two years, right? Or ten years, but the second coldest winter. Right now it just got to near four. So I look at this, okay, that's an opportunity. And markets have to swing, they may have to make it difficult. So as a trader, you look to be response. Okay, five was a bit expensive. Four in January natural gas. And Jan matters because it's the apex of the bell curve. It's the highest price ever. That's when heating demands the most. It's back down to near four, four's been a major pivot forever. I fully expect that to pop up near five. To stay below four needs, you basically need another warmer than normal winter, warmer than price in, and you need no weather scares. So to me, that's a bit mispriced there. The main thing I think is midpriced is long bonds at 5.2%. I think by the end of the year they'll be much lower. Obviously, the biggest issue is the stock market. But in terms of commodities, I'm glad you went to grains, because this week I had the honor of attending the Agri-Next conference put on by Noble in uh St. Louis, Missouri. It was 95 degrees in midday there. In in uh in the in Miami, it's only 90. It was pretty steamy up there. But one sense I I really love presenting and pointing out the price of this soybean you see on the screen right now. So wheat's pumped up for more political reasons. We had, first of all, we had a bit of a drought for winter wheat in this country harvest in the spring in this country. But you know, we see missiles knocking out some of the wheat supply in the out of um the out of Russia and and Ukraine. That's a bit of a pump thing for wheat, sub 30%, but that's gonna bring up more supply. The number one one that matters right now is soybeans. Soybeans are about 30 percent, 40 percent of the Bloomberg agriculture index because you have soybean meal, soybean oil, and um, and soybeans, actual soybeans, and they're running around 12 bucks. Why is 12 bucks important? That was first traded in 1993. So I enjoyed pointing that out at the conference. That was a great grain robbery. If you look at crude oil, which popped up, remember we had back then we had the first Arab oil embargo, popped up to 10. It's up about it got the 120. This year it's up about 10 times since then, but soybeans just stuck there. Why is that? It's a highly autocorrelated commodity. Yes, we need food, it's used for everything, um, but there's massive supply coming out of Brazil, and the average cost of production in Brazil and the U.S. is lower than current prices now. That means just keep planting until prices go down. Unless there's a bad weather event, which would be a short-term thing, prices are gonna go down. So that's one of my main calls right now is natural gas at four is probably gonna go up, and soybeans that just got near 12 is probably gonna go down. You basically need for soybeans to go up now, you basically need crude oil, it has to probably stay above 100, and you probably need a really bad flash drought in August in the Corn Belt.
SPEAKER_02All right. I got to talk currencies just for a second because there's something on the screen this morning I think it's worth putting to you because it may reframe the whole conversation. I mean, gold is up better than 1% in US dollars, but price in Japanese yen, it's it's down more than 1.5% in euros and pounds up a fraction. So for American, gold's rallying, but for a saber in Tokyo, it's falling. I mean, is what we're calling you know a gold rally actually just a dollar decline?
SPEAKER_03Well, certainly in Japan right now. The thing I've got from my colleague, and it's one thing I've been advantaging at Bloomberg. I have all my colleagues who cover like currencies. Audrey Chill Freeman covers currencies out of London. She's been pointed out, yeah, Japanese great, but the the speculator positions long the dollar, short the yen, are very extreme. You got to get a flush out of that. And that's what I think we're doing right now. But the fundamentals I still look at are just what's so great about the fundamentals for Japan. Declining economy, they're they're a major export economy, and whether they're still exporting mostly internal combustion engines. And by the way, you look over at China and their engine, their vehicles are much better and cheaper. I mean, the overall demographics of Japan are just horrible. The macro big picture, everybody gets it. They're trying to think that maybe we're getting a little recovery, inflation. Like, good luck with that. When the stock market goes down, you're gonna see what's gonna happen in Japan. To me, that's why we have to get through this big test. Um, so I'm I'm tilting over to some quasi currencies like cryptos. Cryptos have already flunked that test. And the test is how will markets react when we have the first 10 to 20 percent correction in the US stock market that stays down for a year or so, it just stays down a while. Stuff that used to happen that's way overdue, all the signals are there, and Bitcoin's already flunked the test and isn't even come. Now, some of the currencies I don't know, but the key thing I'm also concerned about, the macro, the dollar that um one of my former colleagues, Gina Martin Adams, taught me is the dollar has basically been tracking um dollar versus the basket currencies, the US stock market versus the rest of the world for since 2009, straight up. So, what happens if stocks go down? Um so that's why I'm kind of concerned. But the bottom line is it hasn't really mattered. I look at that the Dixie, it's like near 100, same price as what a decade ago.
SPEAKER_02But I have to ask you on Japan, because this morning there was some interesting, obviously, yeah, I mean, because it goes to your bond call too. I mean, the yen just jumped about two percent against the dollar, biggest move since the spring. There's there's speculation. Japanese officials stepped in again. Um, you know, that that currency had slid into its weakest in four decades. And when Japan intervened this spring, it spent a record amount, north of $70 billion. And reporting suggests it funded part of that by selling foreign secretary securities, obviously T-bills, U.S. Treasuries. Uh so if that's happening again, one of the largest foreign holders of treasuries would be selling them to defend its own currency. At the same time, the 30-year is it, you know, that 19-year high. Is that part of why the long end won't rally? And does your bond call get harder if Japan is is again selling those treasuries to defend the yen?
SPEAKER_03Oh, it's one of my favorite reasons to buy treasury since I started in the business in 1988, Jeremy. I just I've heard it so much. So many times I've heard, oh, foreigners are gonna sell the treasuries, yields are gonna go up, or there's too much supply, yields are gonna go up. And every time I've heard that, they've basically been wrong. Um, and it's just the way it works is okay, so what are you gonna buy? You can in Japan you get 2.79 in that 10-year note, in the US, you get 4.7 on your 10-year note. It's just uh there and and how deep is their market versus the US? There's not anything any even close. Um but the bottom line also for all this, the 10 for all yields on a global basis, yeah, we seem to pick up a little bit, but in China, you know, 1.7% is what the US is the next move for the US stock market. So I think yields will go down in the US when the US stock market goes down, and yields will stay sticky if the stock market stays sticky. Yeah, guess who gets that? Two key people I know. I know Besson gets it, um, because he's an ex-trader, and I think Walsh and him um probably very much understand that this can't say it, but you know as a trader, as an ex-trader, I look at the things they say, I'm like, yeah, okay. But I still think long bonds will be probably the best trade for this second half of the year. And guess what? I've been wrong on that one for a couple of years.
SPEAKER_02Yeah, yeah. I mean, but yeah, they're they're sitting here pretty high today. Uh, and we can kind of look at gold the way you actually look at it too, relative to other things, not in dollars. I mean, you've written that gold faces normalization again against broader commodities. You kind of talked about it here, Mike. I mean, put that plainly for people, though. Is is the argument that gold isn't expensive against a dollar, it's expensive against copper, against gold, against the rest of the complex.
SPEAKER_03It's is expensive against its major competitors, that's U.S. treasuries. Like I said, at least a four-decade high. I can use a basket of treasuries, I can use just a measure of the U.S. long bond. So that's the key thing. It was expensive. In Q1, it was the most expensive ever versus a Bloomberg Commodity Index. Now I go back 50 years on the data, and typically if you start with like a base of one in um 100 in 1975, it's hovered around 100 forever and it's popped up to 2.5. Now it's down. It's just markets front run the merit net narrative. And I love getting on your program and I love seeing going to metals conferences, and for the first time in 10 years, this year I've started getting, I was pointing out bearish inklings. And I've been wrong on copper, but bearish inklings, most notably gold, and gold is beta for the space. And people look like it might have three heads. Like, well, markets moved. Did you not see what happened? You have to adjust the facts of change. Now, the fundamentals are the same, but prices will dictate. And it's just a key thing is I knew people that I hadn't spoken to for a decade back in Q1. I had spoken to, and it's it was so hard for them to disgorge the gold, themselves the gold, because it got such, you know, it's such a part of a morn of a portfolio for people who are kind of concerned about stock market, but you're supposed to sell the question is what happens now? Um, and that's why I'm worried that we might get a lot more of these false rallies if we've been getting in cryptos for a year. Um, and this suckers some people in. I don't think there'll be a time to buy gold until it gets relatively fair value versus at least the stock market and fair value versus a basket U.S. treasures, and we're way too stretched right now.
SPEAKER_02All right. Mike, uh I gotta ask you about the other metals quickly while I have you, because we're all we usually talk about is gold. But I mean silver's up, what, two percent, platinum approaching three, palladium up roughly four. Um which which of the four is most vulnerable from here?
SPEAKER_03The devil's medal will live up to its reputation. I enjoyed Jeremy saying that on national TV a couple years ago when it was breaking out, and that the anchor hadn't heard that term, but when you trade silver, you'll learn that one real early. Um so I fully expect silver is gonna get stupid, cheap, is stupid, expensive as it got. 50 is kind of the key first level to kind of knock around. That's an old old lows. It probably should bounce from there. 80 or so is pretty good resistance. I think it's gonna knock around in a range for decades like it has in the past. Fundamentals, we all get it, get it, but it's shifted. Prices just moved exponentially. We moved like the highest versus the greatest velocity versus a 60-month move on average since that peak in 1980. So to me, that's part of the problem. Um, and then we look at broad metals. The key thing is so here's one thing I want to point out is the Bloomberg All Metals Total Return Index. I asked our index team to create that index a decade ago. Why? Because the metals typically are the best place to invest in commodities from a total return standpoint. Low, low um autocorrelation and uh low storage costs, you typically want to hold the metals, particularly gold. That's been one of the best performances. The only major sector that made a new high this year was precious metals and metals, and they put pretty much put in a peak, unfortunately, the whole space. So that's why I narrowed down. It looks like gold, silver, platinum, and pladium, they're pumped and they dumped all of them. Iron ore has pumped, then dumped on the year. The number one thing for making them potentially recover is the stock market probably has to go up. But what's next? The number one thing on the list that I'm watching with like a hawk is copper. Now, today, as we speak, copper is around $6.50 a pound. That's wonderful. But if you overlay copper, which I've watched versus S B 500 forever versus SP 500 total total return, it's a complete dud. And it started breaking down in 2023. So I think what copper stuck is between inflation in the US, inflation and risk assets in the stock market, and deflation in China as measured by that tenure nate at 1.71. Which one wins? Let's see the test. So I think the way I look at copper is yeah, great, it made a new high, but because the stock market led the way. If the stock market drops 10 to 20 percent and copper can show me some divergence strength, maybe I can get bullish, but I fully expect it to be more likely to head towards five than stay much above these levels, particularly if you get a normal correction in the stock market. That's a problem. My headline for last month's uh commodity outlook for in industrial metals and metals were they're sock puppets to the U.S. stock market. Yeah, yeah.
SPEAKER_02Hey, I gotta ask you something different before I let you go because people forget there's a person behind these calls. I mean, you've spent a good chunk of your career making, you know, the argument that makes you the least popular man in those rooms. You're bearish gold in front of gold audiences, you're you know, cautious on Bitcoin while it climbed for years, and I imagine the replies were a delight. Uh, what's that actually like? And and how do you avoid the two traps, digging in out of stubbornness and caving because everyone's shouting at you?
SPEAKER_03Oh, you gotta embrace it. It's a lesson I learned in the trading pits. I remember I would my job was to cover clients and say if you have seven clients and you come up with a great idea and you calm all up and they all agreed, you get the trade, and then you raise almost always you're wrong. When everybody called you an idiot, and maybe one guy did the trade and did it like in a small amount, like a hundred lot, when he usually does thousand lots, um, you're usually right. It's just a lesson you really learn right away. But it's also the most significant thing is cryptos are the best for this because they're so emotional. Um, and the signals I got from them when I was calling for Bitcoin to drop um a zero from a hundred thousand just last year were just delightful. I mean, to be called Mick Retard, it's like, thank you, you emboldened me. Um, and I in when I was talking how bullish I was in gold a year ago, I and the nickname I got was Mick Gloom, because I was bullish for other reasons, but it it worked. But no, that's has to embol as a strategist, as a trader, as a position, as someone who's investing, when you sense this the herds leaning too much to the side of the boat, and you got a position on and you've made money. Here's one lesson I'll I'll I'll point out that I've learned in markets is you always have to give something a little bit back to the market gods. If the market gods give you profits and you taunt them, you will learn the hard way. Michael Saylor made a great example of that in 2024. He's the head of strategy. He double-dogged their um this the uh the Bitcoin market by doubling down on the 10x, and he made fun of Warren Buffett for not investing. And his his stock micro strategy was about $400 at the time. Right now it's 96.
SPEAKER_0296, huh? Um, give the audience, I guess, you know, a little bit of a watch list because a lot of people are gonna be watching this over the weekend, at least later this week. Two or three things to watch. What level on each? And and you know, if they only kind of remember one number from this whole conversation, what should it be?
SPEAKER_03Uh $70 in crude oil. First of all, that's the normal high volume price for 20 years. I think it's gonna gravitate towards there. If it stays above 80, that's a bit of an issue. That means um Republicans will probably get hammered in elections. Mr. Trump has to do that. So to me, that's the key levels in crude oil. I think it's gonna be mostly lower. So that's the one that matters. In gold, 4,000 is a lock-in. As far as key levels, can it stay above 4,500, which is around the 200-day moving average? It may bounce there. That might be see some responsive selling. Key supports around 3,500. Remember that lock-in last year? It's like the best signal I ever saw between like April and August, and it finally broke out higher. So those are the key levels there. And then to me, the bottom line for all markets. So, what really matters in in and I'm just keeping an eye on copper. If copper, if it can stay above six and six fifty, that's wonderful. But a normal reversion in copper with managed money net positions almost 25, 26, 7% net long of open interest is CME, which is you know like five times the normal. Um, is just we get a little reversion in copper towards five, that um, or just breaking down below six, that's uh I think can be a sign of a problem in all markets. Yeah. And then of course the bond, the long bond. Can the long bond stay above five percent?
SPEAKER_02Hey, my favorite thing to ask anybody with a big call, I mean, what what are you watching that could change your match? Something in the next few months that says has you saying, okay, uh, I need to rethink this.
SPEAKER_03Number one thing for everything is the US stock market has to stay resilient. If that happens, um it's uh it's um it'll shift a lot of my views. But what happens if that does happen? Fed will have to be most likely focused more on tightening. Um, but that's the number one thing that that's going to matter. That's the number one determinant. If it stays resilient, eh, it's oh hum. If it drops, trade of a trade of a lifetime might be just getting started. So that's what I look at as an option ex option trader. Eh, it's great. You know, just inching higher is like nothing to say. But if it breaks down, I've got a lot to write about.
SPEAKER_02Good advice. All right, Mike McLawn, Sr. Commodity Strategist at Bloomberg Intelligence. Obviously, appreciate you coming on, laying out the case. Many in our audience may see differently, and that's exactly the conversation worth having here. So appreciate your time.
SPEAKER_03Thanks for having me.
SPEAKER_02All right. Now I want to hear from you. Three calls. $70 oil in the middle of a war, rate cuts instead of hikes, and gold's high is already behind us. Which one holds up? Which one breaks first? Tell me in the comments. We do read them. Subscribe, hit the bell, we do this every day. I'm Jeremy Saffron for all of us over here at Kitco News. Thanks for watching.
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