I especially value your views on gold Russell because you are not a single minded gold bug, you look at the data. Some say Warsh wants to reduce fed balance sheet, but I don't see how he doesn't evetually have to greatly expand it due to a unsolvable permanent runaway debt train.
Another Russell, Richard Russell, of Dow Theory fame said that trying to make money in gold bull market is like riding a bucking bronco — easily thrown off and hard to get back on
The SPX/Gold ratio has triggered long term signals indicating a decade or more of gold outperformance. How long? Until equities become cheap based on valuations measure similar to 1980-1982, secular lows. So, gold is the hiding place long term. Not TLT.
Dollar strength? Where next for the Yen? 200. Looks like the dollar wrecking ball is coming back. I am not sure any metals - even copper - can work if the dollar is set to make a big move higher.
Got it. My comment was supposed to say "200?" I do not trade fx.
The other factor is Middle Eastern selling of gold. I have no stats on this but it makes sense that this is a big factor. They are short cash and seem to be selling gold instead of selling US equities. You might need that to reverse. If the oil starts flowing as before through the Strait, maybe gold catches a bid.
I can't unsee the thin zone on XAUUSD $3.5k - $4k. Like a gap, I can see it revisiting this price area. Price action was pretty orderly up until then too.
Gotta have further to fall from here with all the pundits on Tweeter picking their bottoms. All this nonsense about CBs being price insensitive buyers, maybe, but they aren't stupid either.
Bear flag on Gold/Oil
Positioning for this being the half way mark on bull market pullback on declining volume.
Hey Russel many thanks for this - curious how do you deal with positions in cases like this when you see troubles near terms but you remain positive medium term? Do you just tolerate the large drawdown? Isn’t usually a good tip to not stick with the losers?
Its a good question. First of all I look at the whole portfolio. Am I still making money despite this one idea not working? If so, then patience is ok. Secondly, gold has been weak with interest rates rising - that expected. If gold was falling and interest rates were falling, then I would exit straight away. Its not doing what it supposed to do. Does that make sense?
An interesting question given gold's recent run. The metal is doing its job as a crisis hedge, but whether it can sustain at these levels depends heavily on real yield trajectory.
What I keep coming back to in this piece is the SOX/gold chart as a regime indicator. The question you raise, whether semiconductors have replaced gold as the hedge on monetary craziness, is one that most long-term return frameworks haven't explicitly modelled. Capital Market Assumption providers still treat gold as the structural inflation and debasement hedge. None of them have formally substituted compute exposure for that role, even as the empirical relationship you describe has been building for a decade.
The central bank buying thesis remains structurally intact. China's $1 trillion annual trade surplus needs deployment, and US Treasuries are no longer the default destination. That flow doesn't disappear because yields are higher, it just slows at the margin. What most allocators are signalling on commodities is still overweight, anchored precisely on that structural central bank demand alongside the geopolitical premium.
The semiconductor bust you describe as the eventual trigger for gold's next leg is the sequencing question. Not whether gold works, but when.
Gold is literally the worst asset to own in this environment (yes worse than bonds). Market reaction to higher oil prices is pretty fair as well. the root cause is oil and higher yields just a consequence, hence, it makes sense that equities are doing just fine as long as there is unprecedented spending going on in many places, but especially the US. As long as there is no resolution in Hormuz (unlikely to happen soon, or potentially ever), gold remains a clear short.
I especially value your views on gold Russell because you are not a single minded gold bug, you look at the data. Some say Warsh wants to reduce fed balance sheet, but I don't see how he doesn't evetually have to greatly expand it due to a unsolvable permanent runaway debt train.
Well you would think that would affect bond yield more that gold... which was the point og GLD/TLT
Another Russell, Richard Russell, of Dow Theory fame said that trying to make money in gold bull market is like riding a bucking bronco — easily thrown off and hard to get back on
this pretty much generalises to all bull markets...
Seeing a combination of
- central bank selling (Turkey, Russia, Azerbaijan, who else?)
- reduced India buying
- retail burnout and making space for SpaceX
- tether (biggest buyer of 2025?) no longer buying perhaps
- improved fed + ECB credibility
- $$ going towards oil purchase v gold
- below 200d ma some CTA jump ins?
The long term bull case may be there and we may see $10,000 but not sure if we get there after passing through 2-3000?
The SPX/Gold ratio has triggered long term signals indicating a decade or more of gold outperformance. How long? Until equities become cheap based on valuations measure similar to 1980-1982, secular lows. So, gold is the hiding place long term. Not TLT.
Agreed - gold is better than TLT
Dollar strength? Where next for the Yen? 200. Looks like the dollar wrecking ball is coming back. I am not sure any metals - even copper - can work if the dollar is set to make a big move higher.
See my note just published
Got it. My comment was supposed to say "200?" I do not trade fx.
The other factor is Middle Eastern selling of gold. I have no stats on this but it makes sense that this is a big factor. They are short cash and seem to be selling gold instead of selling US equities. You might need that to reverse. If the oil starts flowing as before through the Strait, maybe gold catches a bid.
Saudis still have USD 150bn of treasuries... and UAE 144bn, while they hold USD 30bn and USD 9 billion of gold reserves respectively..
Mind-bending, thanks Russell!
I can't unsee the thin zone on XAUUSD $3.5k - $4k. Like a gap, I can see it revisiting this price area. Price action was pretty orderly up until then too.
Gotta have further to fall from here with all the pundits on Tweeter picking their bottoms. All this nonsense about CBs being price insensitive buyers, maybe, but they aren't stupid either.
Bear flag on Gold/Oil
Positioning for this being the half way mark on bull market pullback on declining volume.
Hey Russel many thanks for this - curious how do you deal with positions in cases like this when you see troubles near terms but you remain positive medium term? Do you just tolerate the large drawdown? Isn’t usually a good tip to not stick with the losers?
Its a good question. First of all I look at the whole portfolio. Am I still making money despite this one idea not working? If so, then patience is ok. Secondly, gold has been weak with interest rates rising - that expected. If gold was falling and interest rates were falling, then I would exit straight away. Its not doing what it supposed to do. Does that make sense?
An interesting question given gold's recent run. The metal is doing its job as a crisis hedge, but whether it can sustain at these levels depends heavily on real yield trajectory.
What I keep coming back to in this piece is the SOX/gold chart as a regime indicator. The question you raise, whether semiconductors have replaced gold as the hedge on monetary craziness, is one that most long-term return frameworks haven't explicitly modelled. Capital Market Assumption providers still treat gold as the structural inflation and debasement hedge. None of them have formally substituted compute exposure for that role, even as the empirical relationship you describe has been building for a decade.
The central bank buying thesis remains structurally intact. China's $1 trillion annual trade surplus needs deployment, and US Treasuries are no longer the default destination. That flow doesn't disappear because yields are higher, it just slows at the margin. What most allocators are signalling on commodities is still overweight, anchored precisely on that structural central bank demand alongside the geopolitical premium.
The semiconductor bust you describe as the eventual trigger for gold's next leg is the sequencing question. Not whether gold works, but when.
Gold is literally the worst asset to own in this environment (yes worse than bonds). Market reaction to higher oil prices is pretty fair as well. the root cause is oil and higher yields just a consequence, hence, it makes sense that equities are doing just fine as long as there is unprecedented spending going on in many places, but especially the US. As long as there is no resolution in Hormuz (unlikely to happen soon, or potentially ever), gold remains a clear short.
An environment of rising short rates?
No an environment of stable but high oil prices. You seem to pin the root cause of gold's weakness on rates. I pin it on oil.