Podcast: Play in new window
- Venezuela Has the Largest Proven Oil Reserve In The World
- A Major Blow To China’s Influence In The Caribbean
- Gold In 2026: A Bullish Forward Look
“Yeah, I think the extraction capturing or extricating Maduro communicates to a broader audience what the US can coordinate across land, sea, air, and space. And like it, hate it, criticize it, praise it, complex operations executed, at least from the outside, from my perspective, flawlessly. There’s plenty of people who will be reverse engineering this one and figuring out if they actually have the capabilities to defend against what was an overwhelming force.” —David McAlvany
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Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick along with David McAlvany.
David, I’m listening to the news outside of the country down in Venezuela, but I can’t help but think about the new mayor in New York. Here’s his quote. He said, “We’ll transition from treating property as an individual good to a collective good.” And I’m thinking, “Didn’t Venezuela prove to us over the last 70 years that communism just doesn’t work?”
David: They just brought Maduro in for a masterclass. They need the New York City mayor to appreciate how things are really done in the real world.
Kevin: Isn’t it ironic that they brought him to New York, which is trying to become Venezuela?
David: That’s right.
Kevin: Yeah.
David: Venezuela is barely a 10th of 1% of global GDP. That’s what’s generated by Venezuela. Chavez and Maduro managed the country into the ground over the last two decades in spite of possessing the largest proven oil reserves in the world.
Kevin: So they basically just crashed that plane.
David: Yeah. 17% of global reserves, the largest reserve in the world.
Kevin: Wow.
David: 300 to 303 billion barrels of oil is what they have in ground. Yet it produces annual volumes that puts it number 18. They’re 18th in line in terms of global production.
Kevin: But they have the largest reserves.
David: Largest reserves. And that’s the opportunity that Maduro and Chavez had. And they don’t know what to do with it. Why? Because market economies know how to maximize. This is something that is going to be lost on socialists and Marxists forever.
Kevin: The people who are talking, “Oh, you need to release Maduro. What in the world are you doing?” All of those come from socialist countries that are failing miserably.
David: You’ve got a number of countries that import Venezuelan oil. China’s at the top of the list. Turkey, Spain, Brazil. You can look at Asia, ex-China, and there’s a lot of smaller countries that are taking on Venezuelan crude as well. Cuba sits at the top of the list. I think about 8% of total Venezuelan barrels go to Cuba at a discounted rate. So this week, China’s not happy. And Cuba’s not, either, for very obvious reasons.
Kevin: Well, from what I understand, the guys who were guarding Maduro were Cubans. They weren’t Venezuelans.
David: Which says something. When you have to have sort of your Praetorian guard, a non-native people, because actually you’ve so abused the relationships domestically that you have to go outside your country to find someone who will protect you. That’s pretty telling.
Kevin: So let me ask you. Even though they’ve run the oil industry into the ground with the largest reserves in the world, what percentage of their GDP comes from oil?
David: Well, GDP, I don’t know, but 90% of their export revenue is from oil. And it’s the linchpin for the socialist state. It’s been funding what can be funded. Chavez nationalized the oil fields in 2007. Kicked out ExxonMobil, kicked out ConocoPhillips, and Chevron has the only remaining operating presence in the country of the super majors.
Kevin: That’s always a threat with mining and oil is the nationalization of those industries.
David: I remember a couple of gold mines that were nationalized, Canadian miners, back in 2007. And so, yeah, it’s just resource nationalism. This is why when you’re looking at resource plays within a portfolio, tier-one jurisdictions are a necessity. Any place that has the rule of law or a reference to a history with British common law, contract rights are really, really important. And we talked about how important that is in terms of unlocking value with our guest from Peru. I can’t remember his name.
Kevin: Yeah. Hernando De Soto.
David: Yeah, Hernando de Soto.
Kevin: Yeah. We were in Switzerland when we did that interview. Remember he was down in Peru, but that was a fascinating interview because he did. He talked about contract rights being so important. Now, let’s go back to Venezuela when contract rights actually worked. How much were they producing when they were doing well?
David: Venezuela at its peak was producing three and a half million barrels of oil a day. A huge amount of that going to the US. I think close to two million barrels a day were coming to the US. But under Chavez and Maduro, they’ve ground that down by two-thirds to under a million barrels a day.
Kevin: Typical communism.
David: The wealth that’s been squandered, the massive brain drain that has occurred as state level corruption and mismanagement has forced millions of citizens to flee the country, that has set the country back decades. Think about this. When drugs become a welcome export in lieu of oil, something’s very wrong at the institutional level. Maduro and Chavez both promised the classic communist redistribution of wealth.
Kevin: Well, like Mamdani.
David: What they delivered was uniform poverty for all. Well, except for the upper echelons in politics, and that’s typically the way socialism plays. Somebody was criticizing Mamdani’s wife’s $650 boots the other day.
Kevin: Oh, there’s boots for everybody. If you’re a communist—
David: Those will be free too.
Kevin: Yeah. Everybody gets them.
David: Yeah.
Kevin: Okay.
David: So what they’ve been doing is siphoning off the rents, so to speak, from the oil market. And it’s come at the cost of the people. You have hyperinflation. I wrote a paper for an economic group, this was a couple years ago. Mary Catherine and I co-wrote this white paper on immigration. And one of the things that inspired the paper was we were on vacation at Disney World, hopped in a cab, we started talking to this guy. He’s a doctor from Venezuela. His wife is a pharmacist, and he’s been driving taxis in Florida for the last 17 years. And what it takes for him to get re-certified and licensed— He was accepted into a program at Johns Hopkins, would have cost him 80 grand. And he had kids to feed, to put through school, to get into college.
Kevin: So practically, he just had to drive a cab.
David: The life that he was offered here in the US was so great and the next generation would benefit, he didn’t have the time. He couldn’t spend the money to re-certify. And that’s the kind of brain drain— You see talent leave a nation when opportunity is squeezed, and ideas have consequences.
Kevin: So with that being said, all right, let’s say we do bring a free market contractual kind of community back to the oil industry down in Venezuela. What does that look like? What do you think over the next few years? Didn’t Trump say 10 years is what it takes to reconstitute?
David: Well, he’s talked about a revival of the oil industry. Estimates are of 10 billion a year in investments into infrastructure because they’ve not kept anything current. So one of the reasons why you’ve got a decline in production is they can’t operate it. They’ve lost the talent to do so. And it takes continual reinvestment to keep equipment up and fresh. So 10 billion a year in investments in infrastructure each year for a decade, or roughly a 100 billion in total, is what the country’s oil industry requires to increase production—maybe even exceeding the three and a half million barrels a day which they had at the peak.
Kevin: And those will be the big name oil companies.
David: Sure. I think US super majors are in a first position. Chevron has the only rights to export to the US from Venezuela today, but Exxon and ConocoPhillips have billions to recoup from their previous investments there. They will be first in line.
Kevin: Okay. So the question that would run through people’s mind also is, there was talk five years ago, and before that even, that oil was going to play a less relevant role in world economies. Do you think that that’s the case?
David: Well, the same comment was made of coal. And clearly, we’re moving on to cleaner energy sources, but if you look at coal consumption 2025, it hit an all time record.
Kevin: Really?
David: We’ve used more coal in 2025 than any other year in recorded history.
Kevin: And it’s supposed to be a thing of the past.
David: Now, as a percentage of energy used, it’s diminishing.
Kevin: Okay.
David: And ultimately, they will mothball coal-fired power plants, certainly here in the United States, not likely in other parts of the world.
Kevin: But would you say oil plays a key role still in economics?
David: Yeah. I mean, if energy, more generally, if energy remains as critical to economic advantage as it has in decades past, in centuries past, then you could see the Trump move to control Venezuelan oil as a stroke of genius. Whether you approve of foreign interventionism or not, there is a critical reserve calculus which dovetails nicely with US energy needs and domestic production decline rates. We covered that in a client call in October of this last year where we looked at shale and production getting to 13.6 million barrels per day, and then beginning to trail off. There’s no economic incentive today to drill, baby, drill. The price of oil is not sufficient to cover the costs of managing many of your tertiary fields.
So this is not a hostile takeover of a country or another version of regime change. It is an oil industry takeover. Whether it can succeed depends on regime participation. So can the government there move beyond the colonialist tropes to seeing how much better off they would be with foreign direct investment, with a version of glasnost? If you remember, Russia had many periods of glasnost or perestroika, where they were going to reform, were going to change, they would attract Western capital, and then of course they’d close again. They didn’t really change who they were.
Kevin: I think there were five glasnosts/perestroikas through communist history in Russia.
David: Yeah. And this is not internally inspired, but maybe it’s externally stimulated. Do you want foreign direct investment in your country? Do you want to transform the revenue streams which will support your social promises and make a better life for Venezuelans? Let Western capital flow in to revive their largest and their most legitimate revenue streams.
Kevin: Okay. But is it just oil? I mean, I think they’ve got other commodities.
David: Very richly endowed with other mineral wealth. Gold, iron ore, copper, nickel, bauxite, which gets turned into aluminum. Those are among the resources in both the Orinoco and the Guiana Highlands.
Kevin: I remember buying a book by Ludwig von Mises, his lectures down in South America, back—I can’t remember how many decades ago it was—but it was trying to convince Latin America that free market economics was a way out of poverty. And so it’ll be interesting, Dave, to see if that mindset can change enough to where the country, like you said, gets behind contract law, free market economics, instead of the promises of communists, which is to redistribute wealth.
David: Well, something that was learned in Venezuela back in the 1940s is it’s worth splitting the revenue with the corporates who know how to get the job done. So if you get 100% of a small pie or half of a very, very large pie, it could be to your advantage to cooperate. Venezuela’s been a major player in the oil markets going back to the 1940s. Juan Pablo Perez Alfonso made a massive contribution to the creation of OPEC. His contribution was second to none. The oil standard, which today is run by OPEC, was set by a Venezuelan.
Kevin: Isn’t that interesting? I didn’t know OPEC started with a Venezuelan.
David: Yeah. He was critical of the transformation of the Venezuelan economy, and was minister of mines and hydrocarbons, 1942— From 1942 to 1964 was really when he had his imprint. He had to leave in 1948. There was a coup.
Kevin: What’s new? What’s new? A coup. What’s new?
David: But he came back and ran it from ’59 to ’64. OPEC was created in 1960. He fled the country for the United States in 1948 when that coup occurred. He studied the Texas Railroad Commission’s control of oil prices in the 1930s, and conceived the idea of a state cartel to do the same thing, taking back control of both the price level and also annual production levels. There was the Seven Sisters back in the day, the seven largest oil producers, who would collude on price and production. And if they decided to cut production, all of a sudden the revenue for the state could be thrown into a tizzy.
Kevin: So the intention was to bring the wealth to the people of the countries that the oil was coming out of, but not necessarily divorce the corporate side, right?
David: Yeah. OPEC launched in 1960 at the Baghdad Conference. There were five members, Venezuela number one, Saudi number two, Iran, Iraq, Kuwait. And Venezuela, specifically Alfonso, conceived of the idea. So between rent-splitting, which is again this notion of taking the revenue from oil and allowing for the state to benefit, but also for the corporates to have their revenue as well, and be rewarded for the work of actually producing and bringing it out of the ground. But he wanted cartel-like control of the supplies. Alfonso’s without a doubt one of the most important figures in the history of the oil market.
Kevin: Okay. So people are going to have a lot of different opinions about what happened with Venezuela. That’s really not what we’re talking about today. What we’re trying to say is, what objectively is positive about it? What’s objectively negative about it? Let’s start with the negative.
David: Yeah. The actions taken over the weekend, they speed the process of deglobalization. And those that see greater cooperation and integration as an ideal globally will see the US acting in its own interests. Energy security, the chief goal. The actions further entrench those who disapprove of US foreign policy as a unified block in opposition to what we stand for, but certainly the currency we trade into. The US dollar is a currency for trade settlement. That frankly doesn’t take much in terms of unifying them.
Kevin: Well, the BRICS have been moving that direction for quite a while now.
David: Yeah. Haters will hate, as they say. US dollar haters will continue to gather and gripe. But I mentioned the record Chinese trade surplus a few weeks ago, for the year 2025. And it’s remarkable to see this step towards global trade integration, ex the United States, in a year where tariffs featured prominently and a reduction in trade between the US and China was very significant. 18% is the low side estimate, 29% is what I’ve seen is the high side estimate.
Kevin: That’s incredible in one year, 29%.
David: Reduction. And we’re their largest trade partner. So the rest of world consumers more than filled the gap and gave them the largest trade surplus on record. Will those enhanced flows bother with invoice settlement in US dollars?
Kevin: Right. Should they even bother?
David: Why bother?
Kevin: Yeah.
David: So I think that the deglobalization aspect, you see one country act for themselves in their own self-interest, and other countries ask the same question. It looks like we’re going to have to go it on our own. Or you’re talking about a reconfiguration of the global order. It’s just not a Western-based reconfiguration.
Kevin: Well, and Trump is amazingly unpredictable. He’s predictably unpredictable, and it does keep everyone on their heels. You have to almost hedge yourself from some of his decisions. And that’s part of his negotiation strategy, I think.
David: Yeah. I think other negative aspects— Geopolitics is— If it’s not already in investor calculus, looking at risk and reward, I think geopolitics is becoming firmly entrenched. And anyone who doesn’t have a framework for thinking about geopolitics and black swans is, at this point, in that category of helplessly naive because the world is not in a healthy state.
Kevin: Taiwan is an unknown. Iran. Tehran right now is an unknown. So yeah, geopolitics factors in to this whole chess game.
David: Yeah. Geopolitical conflict is a feature of the modern world which, if it’s left unaccounted for, presents surprising losses for the investor. So the net result is nations looking after national interest first. Internationalism, global integration, is not a feature of the modern world. Maybe it was 20 years ago. It’s not today.
So the net result is that, consistent with the IMF’s estimates of global debts doubling in the next 15 years, I think you’re going to see pressure on fiscal stability, driving of interest rates higher in a long cycle. And this is a global interest rate trend, upward bias for inflation, and interest rates that are becoming entrenched. Factors that, like the 1968 to 1980 period, were just kind of what you grew accustomed to. Venezuela was not necessary for this to emerge, but anything that exacerbates deglobalization is supportive of that trend.
Kevin: Well, and haven’t we been seeing this whole trend toward deglobalization in the gold price? That’s been indicative, especially since 2022 when the Shanghai exchange started becoming the new exchange for the international currency called gold.
David: Yeah. And it’s really a grasping for autonomy. It’s state actors saying to themselves, “Our reserves are not entirely safe if they are attached to US-controlled liquidity pipes. And so how do you get assets off grid?” Well, I think many of our investors would say, “Well, that’s easy.”
Kevin: You put yourself on a gold standard.
David: And that’s essentially what central banks are moving back to. It’s a version of remonetization, and it’s to address this issue of how do you insulate yourself from the US Treasury Department? How do you insulate yourself from the US State Department? If foreign policy is not bound, US foreign policy is not bound, then the old rules of respect are gone. That’s what was really remarkable in 2022. We had never had sanctions on a central bank. So Russia becomes the first central bank to be sanctioned, and half of their currency reserves are seized,$ 300 billion in currency reserves.
Kevin: That sent a sound wave—a signal, basically, that you have to get away from the dollar for some of these countries.
David: Right. That’s right. So again, when you see what happens from a geopolitical standpoint, our capturing or extricating Maduro, the rest of the world looks and says, “Yeah, this is more of the same. How do you insulate yourself from US activity? Do we want to have autonomy? Do we want to have agency? Do we want to have a say in our destiny?” From a financial standpoint, that’s easy. And so central bank acquisitions, estimates for this year, likely to be softer than the last few years. 755 tons is what’s been written up by the World Gold Council, a number of people contributing to research on that front. And so in dollar terms it’s still a massive number because you’re talking about a much higher gold price. So in nominal figures, it may be a record, but a smaller tonnage is what’s estimated.
Kevin: They’ve really been their customers. Yeah. They’ve been the customers in the gold market. Okay, so we’ve looked at the negative aspect, which is more autonomy and globalization breaking down, the cooperation. What do you see as positive over what happened this weekend?
David: Well, it’s the first action of its kind that is explicitly about control and influence of a country’s oil reserves. And I say explicitly because Trump was unapologetic in his speech.
Kevin: He was transparent. Yeah.
David: That’s different than what we saw in Iran in 1953 with Mosaddegh. The CIA helped with the overthrow of Mosaddegh to put the Shah back in place. And then, by ’79, we shifted again and we’re like, “Well, we still want control of the oil fields.” And frankly, the Shah is far too much a nationalist and not an internationalist the way we wanted to brand internationalism, favoring the US foreign policy objectives.
Kevin: Yeah. How’d that work out?
David: Right. Well, we thought we were putting in a puppet that we could control. And as it turned out, Khomeini was a bit of a disaster. But it wasn’t until 2013 that the CIA actually came out and acknowledged, yeah, we were involved with the overthrow of Mosaddegh.
It’s fascinating that we are explicitly saying, “No, this was about control of the oil fields, the largest oil reserve in the world.” The oil market balance of power has already shifted from OPEC and the Middle East with US production increases in the recent years following the Shale Revolution. So influence or control of Venezuelan reserves using the super majors, this is a power move like no other from the Trump administration. There’s a huge strategic advantage to bringing the largest oil reserves in the world under your umbrella, if for no other reason than to prevent other power players from expanding their reach and influence into our territory and capturing the same asset to benefit themselves.
Kevin: Well, and this is why The Monroe Doctrine, back in 1823, President Monroe, this doctrine came out that said, “Do not interfere with our interests.” And The Monroe Doctrine, we heard that several times during the Trump speech.
David: Yeah. And he even called it The Donroe Doctrine, which was-
Kevin: Donroe.
David: —a fun play on words. There’s something very real and tangible to gain from shifting the development of the Venezuelan economy from desperate and eager to work with our global competitors to being on a growth trajectory and perhaps being a friend of the South. Other positive aspects include the audience to these actions. They get to take a fresh measure of our capabilities militarily. It remains to be seen if the necessary institutional support will grow and develop lasting change within Venezuela, but it is interesting. We have a global audience for everything that we do.
Kevin: Well, and I wonder if that global audience, Cuba, Mexico, a message was sent to Mexico. And then, of course—
David: China.
Kevin: China.
David: Iran.
Kevin: Iran.
David: Russia. So will they be able to take the next step? What’s the day two plan? I don’t know how sophisticated the administration is in helping to orchestrate and lay out a plan. When we’ve been involved in things like this in the past, we got very involved. I’ve got my godson who’s at the University of Chicago. And the Chicago Boys, these were the PhD elites at the school, were sent down to Chile when Allende was overthrown. The CIA was involved in that too. And so we brought in a military dictator.
The Chicago Boys wrote the Constitution and designed the whole economy. And Chile, for many decades, benefited from that economically. Again, regardless of what you think of what we do, what we choose. I’m not thinking that Pinochet is somehow a hero of freedom and democracy. No, not exactly. But it’s interesting to see, again, that this is so explicit.
Without a move like this, I think poverty and control go hand in hand. And it’ll be interesting to see how the Venezuelan people respond to this because sometimes slaves, when they’ve been in a state system, they actually can’t deal with the anxieties of the unknown. And so a market economy promises opportunity to those that are willing to engage and take risk and work hard. But the broken spirit of a slave state often prefers the guarantee of scraps from a breadline. It’s taken Eastern Europe some time to emerge from the Cold War and embrace the unknowns of the market economy versus the knowns provided by a state run system.
Kevin: Yeah. I remember I went to Dresden, Dave, in 1996, and it was about—what was that? About five years after the wall fell?
David: ’89.
Kevin: ’89. Yeah. So seven years after. But I was talking to a lady who had three jobs. She had come from the communist Eastern block, and she said, “Yeah, freedom sounds good, but it made me go from having one job to three just to survive.” And she said, “I know there’s opportunities, but I really miss the old system in many ways.” And I was thinking, “That is interesting.” We hear in the West how great it is when communism is broken, but a lot of times the people within communism are already broken to the system.
David: Yeah. And I think breaking the poverty mindset in Venezuela will take a generation. And the return of the talent that’s migrated or fled for more opportunity elsewhere, that’ll be a slow return, a long period of wait and see. And a part of that wait and see, do you really want to go back if you don’t see institutional reforms?
Kevin: Well, and doesn’t it involve education? I mentioned Ludwig von Mises going down and lecturing and saying, “Hey, these are the opportunities, but you have to take the risk.”
David: Yeah. I don’t know. I mean, we don’t want to change the regime. I don’t know how the country changes without—
Kevin: Changing the regime.
David: Right. And that’s a question that’s fraught. It’s much more philosophically debatable. Whose worldview, when, how, where? Copy and pasting what works in the United States doesn’t necessarily work every other place in the world. So how do you take the principles of freedom, liberty, autonomy, the value of the individual over the collective, begin to inculcate that? That is, again, a generational process.
Kevin: Well, and going back to the geopolitical, aren’t we creating, hopefully, a new ally instead of enemy? Because we’ve got some real enemies. I mean, China, Russia, Iran, these countries are directly connected with Venezuela. I mean, this is almost a Cuban outpost like in the 1960s. Remember the Bay of Pigs?
David: Maybe the bigger story is not about oil. In corporate circles, I sometimes hear the phrase “level set,” which in business—this is not in math—but in business is sort of the defining of the current situation to establish a baseline for discussions. I think we just did that.
Kevin: Yeah.
David: This is the US military, and it’s highly capable. Let’s talk about what happens next. We just set the new discussion. So not only does taking Maduro out of the picture check the growing Chinese influence in the Caribbean, it raises the existential stakes for Cuba. Cuba would have gone extinct without Venezuelan support via subsidized oil years ago, years ago.
Kevin: Is that the next domino to fall, you think?
David: That may be. Regime change in Cuba may be a secondary domino to fall in the Caribbean. And certainly without an energy lifeline, I can’t see them coming through this.
Kevin: Yeah. So you’re saying Cuba relies on it, but China brings in a lot of their oil from Venezuela as well.
David: At least some. And when I say “check the growing Chinese influence in the Caribbean,” it’s like shifting pressure on a chess board. You just move a couple of pieces and the dynamics shift dramatically. Chinese oil imports from Venezuela are the tip of the iceberg. You’ve got China, which has made a concerted effort to extend its influence globally. And the Caribbean has been no exception that there’s a give and take of natural resources globally. And so we’ll provide financing for these infrastructure projects, and we get long-term contracts for iron ore and cobalt and this and that. And again, Venezuela is no different. China has been trading influence for the last 10 to 15 years. That may have just shifted in the Americas.
Kevin: Well, and I wonder, in the scheme of the timeline of technological change in militaries, I had lunch yesterday with a friend of mine who is a former general in the Air Force, and he had been on missions similar to this from his background, and he was quite proud. He was amazed.
David: Noriega?
Kevin: Perhaps. Yeah, actually, we can’t even go into what it was, but I just asked him, I said, “How about the drone submarines that Venezuela’s been trading with Iran and some of the things going on?” And he had confidence, Dave, in the US military. He said, “We have capabilities that we haven’t even shown.”
David: Yeah. I think the extraction communicates to a broader audience what the US can coordinate across land, sea, air, and space. And like it, hate it, criticize it, praise it, complex operations executed—at least from the outside, from my perspective—flawlessly. There’s plenty of people who will be reverse engineering this one and figuring out if they actually have the capabilities to defend against what was an overwhelming force.
Kevin: So let’s talk about Iran, because you brought up the CIA in Iran, and we have protests right now on the street in Iran, and we have the threat from Trump saying that if there’s any shots fired, which is typical of the Iranian government, we will get involved. What do you think about Iran right now?
David: One more thing on China. It’s the Venezuelans utilize a good deal of Chinese tech and telecommunications equipment, which was rendered useless this weekend. So again, as you sort of look at what you’ve been providing, what you’ve been creating, and what you consider to be top-notch equipment.
Kevin: Cutting edge. Yeah.
David: There’s a strong subtext here, both for the Chinese and the Iranian governments, which I think they will find bothersome. You have good equipment, but is it good enough? Does that cast a shadow over the PLA’s plans for Taiwan? Does that remind Putin that if the Ukrainians can target his palace, maybe the US can do one better? Again, it changes the tone, and I think the global audience, there was a lot happening. Two people affected, two people extracted, but a global audience.
Kevin: Yeah. And I was looking at why they weren’t using F-16s because they’re so visible on all the sensing equipment down there in Venezuela, the cutting edge. But the F-35, they just couldn’t see.
David: Yeah. Well, in terms of Iran, the Iranian domestic unrest and the Trump threat to intervene if there’s a loss of life amongst the protestors, I think it’ll land more firmly following the direct application of military power in Caracas. We’re not going to tolerate that. Maybe you think twice about unleashing the dogs.
Kevin: So no one is untouchable?
David: No one’s untouchable.
Kevin: Yeah.
David: That’s a not-so-subtle takeaway. You can run, but you can’t hide.
Kevin: So the markets, because anytime uncertainty is interjected on the markets, I mean, what do you see for the equities right now with the uncertainty?
David: Well, I think, looking back at 2025, first, there was analyst consensus for 2025 performance—in US equities primarily—that, in fact, US equities would outperform the international markets, the emerging markets. And gold would trade maybe as high as 2,500, 2,750. And those were the outside figures.
Kevin: Those are the predictions?
David: Yeah. Coming into 2025. Looking at how that turned out, the S&P 500 was up 16.4%. The NASDAQ, up 20; the Dow, up just shy of 13; the Russell 2000, more of your small cap stocks, up 11%, 11.29. Compare that to the international markets: the FTSE out of London, up 21; the French CAC index, up 20; the German DAX, up 23; Spanish IBEX, up 49.
Kevin: So the US markets underperformed the predictions.
David: The Italian MIB up 31.47. Ibovespa, which is in Brazil, up 34. And the South Korean KOSPI, up 75.6%. So in a totally different league. Very few things kept pace with precious metals, of course. Gold up 64%, silver up even more. Gold stocks, at least the HUI gold stock index, up 157%. So as you look at consensus for 2025, the action was going to be in the US markets. And you factor in a weak dollar, down 9.4% for the year, and your overseas investors barely made the double-digit club in US equities.
Kevin: Right, if they were here.
David: Yeah.
Kevin: Yeah.
David: Ray Dalio has a nice discussion on returns factoring in currency effects in his 2025 year-end summary. It’s worth looking at. And I enjoyed reading the comments on his missive as well because they’re like, “This is a really interesting way of framing things.” Oh, yeah, you’ve got to factor in what happens to the currency to your net return as a foreign investor.
And there was a lot of foreign capital that flowed into the US. The question is, is it just as happy to sit tight? Do they think the dollar is going to be strong in 2026? Is there a case to be made for a weaker dollar, maybe even another 5%, 10% correction in 2026? And what’s consensus in terms of the equity markets for 2026?
Kevin: Well, what is consensus for 2026? Yeah.
David: Bloomberg did a survey. 21 brokerage forecasters surveyed, 100% of them—100% of them—see US equities trading higher for the year.
Kevin: Well, there you go. It’s going to happen. Yeah, the majority’s always right. Isn’t that what your dad said?
David: You got it.
Kevin: Yeah. No.
David: That’d be the fourth year in a row, which is a rarity, to have four years in a row of positive gains. As we know, the majority is always right.
Kevin: No.
David: Always.
Kevin: Okay. So we’re talking about equities, but you like to invest in things that if you were walking through a dark room, you’d trip over or stub your toe on. Real things. Okay? So the commodities.
David: In an environment where you have pressure on inflation and therefore pressure on the long end of the curve, interest rates moving higher, financial assets tend to be impaired. Real assets tend to find their stride. And we began to see that. The Bloomberg Commodities Index up 13.9% for the year. Copper, a banner year, up 42%. Best performing CapEx commodity. Aluminum was not far behind it. Silver won the gold. Silver was up 148%.
Kevin: Amazing.
David: And that factors into Comex take-down attempts. This is pretty remarkable.
Kevin: You’re talking about the margin requirement changes?
David: Correct. The first one, totally acceptable. You expect to have futures traders with a little bit more skin in the game. The second one was certainly the targeted attack. There was a line in the sand. We don’t like seeing silver over $80.
Kevin: Saving some of the big banks, maybe, who were short.
David: Yeah. I mean, and kind of a side note on that. The OCC, Office of the Control of the Currency, in December of last year, they put BofA’s, precious metals derivatives exposure at a notional value of $49 billion. Citigroup at 204 billion. No surprise, JP Morgan at the top of the list, 439 billion in notional value. That’s all precious metals, that’s gold and silver, long and short. That’s their total exposures.
Kevin: A lot of that’s just contract. It’s just leverage, right?
David: Yeah. But bank stress and Comex member stress will continue to be like a sword of Damocles over the precious metals futures market. With Comex changing rules to accommodate the cartel. We’re back to a cartel conversation.
Kevin: Let’s talk about things that we can’t really put a finger on as far as reality.
David: But I left gold out. Gold up 64.6% for the year.
Kevin: Well, that’s a real thing though. Okay. So that’s what I’m saying. We can count on that. I mean, for 4,000 years, it’s purchased just about the same amount of bread each year, right? I mean, so gold, that’s a good thing. But how about the new gold? The gold that I was told I was just backwards and sort of not understanding when I said, “I don’t think bitcoin is the new gold.” Am I still just an old fogy?
David: No, I think it is the new digital gold. It is the future safe haven asset for all sentient beings and every central banker. It did lose 6.5% last year. And our expectation is that, over time, if you have enough people driving the price, it can go higher. But it behaves like a risk asset. And so it really depends on the total environment and the liquidity dynamics within the market. So expect it to do incredibly well, assuming that those variables are in play. Risk assets do well, and Bitcoin should participate.
Kevin: Momentum trades, that type of thing.
David: But if liquidity dynamics change, speculative energy shifts, and appetite for risk taking diminishes. And I think that’s where you see the clear differentiation between bitcoin and gold. People are looking for a safe haven in a period of time where it’s not clear what they’re trying to avoid in terms of risk because the equity markets and the bond markets were relatively stable last year, and yet the precious metals had a banner year, which makes me think it’s the smart money that’s front running a crisis. And we don’t see it in the headlines today, but people have an intuition.
Kevin: Yeah. So whether it’s a debt crisis—
David: And maybe it’s not an intuition, maybe it is debt. Maybe it is in anticipation—
Kevin: Maybe it’s debt or geopolitical, like you said. Yeah.
David: The big beneficiaries, if you’re talking about inflation statistics, the factors that helped inflation stay relatively tame in 2025, crude was down 20%, net gas off two, your ags, particularly grains, often in a range from 4 to 8%. So some alleviation of pressure. Think of the 2025 benefits to the inflation numbers from ags and hydrocarbons. What if that’s not a repeat in 2026? So, two years back to back, I would doubt it.
Kevin: So my question to you would be this, after this weekend and after talking about the change in consensus in 2026, you had people who didn’t like gold a year ago loving gold this year and acting like they’ve really been behind it all along. What would you say, for the person who’s listening to this saying, all right, Dave, do I need to change anything in my portfolio right now based on the new change in Venezuela, the energy markets, geopolitical? What are your thoughts just going forward?
David: I think sentiment is one thing. Sentiment for the metals is really high. Allocation is another thing altogether, and the Bank of America survey of investment managers, asset managers, still puts it in the low single digits in terms of an allocation, like 1%.
Kevin: So they’re like, we love it, it’s going to go up, but don’t do more than 1 or 2%.
David: Now the interesting thing is that there was another survey of commercial banks that have precious metal analysts, and the view is that, oh, we’ll see 5,000 this year. And that was kind of the high end of the range in terms of price expectations, 5,000, as low as 3,500. One of the comments I thought was interesting for every 10th of 1% increase in allocation to gold from the global investor community, they mapped that out as a 1.4% gain in price. So you do the math, a 10th of 1%, what is it? A 1% allocation—
Kevin: It’s got a 14-fold gain.
David: It’s a powerful move. The fact that it’s an underowned asset is really interesting. So this is a difficult time as a metals investor because you look at sentiment, you look at charts, you look at graphs, you’re like, wow, this has been a great move. Maybe it’s time to move out. The fundamentals for the metals have never been stronger. Central banks still have a reason to migrate. We, even from this last weekend, see a further deterioration in geopolitical relationships and consternation over US foreign policy, a distrust of US institutions up to and including the Treasury, the Fed, and what they actually control—the debt markets and the dollar.
So it’s a very unique setup in the sense that gold has moved on the basis of central bank demand and has been front run by, I think, some healthy institutions, family offices, high net worth individuals.
Kevin: But not the typical driver, fear. Fear is the driver of the masses when they buy gold.
David: And it’s usually in reaction to some sort of a headline. We don’t have that in play yet. I don’t know if we have that in play in 2026, but a correction in the equity market, a concern about fixed income. Maybe it’s implications of the next round of QE and its negative impact on the US dollar. Is it reasonable to think that the dollar will strengthen in the context of $40 billion a month in quantitative easing?
Kevin: I don’t think so.
David: Is it reasonable to think that people are concerned about our debt markets when we’re not at war and we’re going to overspend by $2 trillion?
Kevin: Right.
David: And a trillion and a quarter of that is interest payments. You go back to the IMF and their view, the BIS also has some views in terms of growth in global debt over the next several decades, and it argues for continued pressure on interest rates, continued pressure in the realm of inflation, which is one of the ways that governments classically have moved against and alleviated the pressure of debt. Let me see if I get the time cycle right. The Brits from 1946 to 1976, over a three decade period, they took their debt-to-GDP ratio, which was over 250%, and reduced it to less than 50%.
80% of the alleviation of the debt-to-GDP figures came from inflation of the currency. 80% came from inflation of the currency. So as you look onto the horizon, you say, well, nobody’s willing to spend less, and we don’t have the money. So it is stacking up on the balance sheet—wrong side of the ledger.
Kevin: Financial repression works.
David: And inflation is one of those things that it’s a useful tool. It’s a policy tool. It’s actually a choice. And we see it in miniature in that 2% inflation target, but you can talk all day long about what you want. What you’re allowing to occur is something else. And we require something on the order of six, eight, 10% for a decade or more in order to alleviate our current debt. So what does that mean for the average investor? It means if you’re not paying attention to real assets, you’re not paying attention.
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You’ve been listening to the McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany. You can find us at mcalvany.com and you can call us at 800-525-9556.
This has been the McAlvany Weekly Commentary. The views expressed should not be considered to be a solicitation or a recommendation for your investment portfolio. You should consult a professional financial advisor to assess your suitability for risk and investment. Join us again next week for a new edition of the McAlvany Weekly Commentary.
