On the Road Again
HAI will be very brief this week. This author is on the road again, attending a 20-year college reunion. It’s been made clear by many of those I hold dear that full attendance is mandatory.
That said, it was another brutal week for the precious metals and, to some extent, markets more broadly. But despite another week of selling, HAI is convinced that this is merely a correction within a very powerful and still ongoing precious metals bull market.
A week ago, Bloomberg pointed out that March saw the largest sale of U.S. Treasuries since at least 2023. That selling is a consequence of the Hormuz-related spike in oil and food prices that is causing a global scramble for liquidity.
In HAI‘s view, that selling is likely to continue until oil and food prices retreat significantly or, more likely, until entities such as the World Bank lend the money necessary for cash-strapped emerging market nations to buy energy and food at higher prices.
In that light, a Reuters article from a week ago points to numerous countries turning to the World Bank for funding. In an article titled, “World Bank document shows 27 countries seeking to ensure access to crisis funds,” the World Bank reported that, “The 27 countries are among 101 that had access to some form of prearranged financing instrument that they could tap in a crisis, including 54 that signed up to the Rapid Response Option, which allows countries to use up to 10% of their undisbursed financing.”
Of course, more U.S. dollar loans chasing constrained supplies of energy and food will only make the inflation problem worse. As that happens, emerging markets will have to sell more U.S. Treasuries to buy food and energy, putting even more upward pressure on U.S. Treasury yields and—by extension—applying more pressure on Western sovereign fiscal strains.
Again, this sequence ultimately starts the clock with regard to when policymakers are forced to act much more aggressively to save the bond market. Technical corrections are always a part of bull markets. In HAI‘s view, this one is no different. When we reset sentiment and reset the chart, the fundamentals will take over again. When they do, those powerful fundamentals will likely drive the next move in metals.
The fact that COMEX Gold Futures Open Interest has now collapsed to 13+ year lows is a strong indication that this healthy correction is accomplishing its resetting mission. In HAI‘s view, we are building the fuel that will power the next leg to come. And with the Fed being forced closer and closer to the point where it will have to save the bond market, we likely don’t have long to wait.
Weekly performance: The S&P 500 was down 2.59%. Gold was down 4.78%, silver lost 9.95%, platinum was down 7.97%, and palladium was down 10.38%. The HUI gold miners index was down 11.70%. The IFRA iShares US Infrastructure ETF was up 0.59%. Energy commodities were volatile and mixed on the week. WTI crude oil was up 3.26%, while natural gas was off 2.08%. The CRB Commodity Index was up 0.94%. Copper was off 1.90%. The Dow Jones US Specialty Real Estate Investment Trust Index was up 0.64%. The Vanguard Utilities ETF was off 0.16%. The dollar index was down 1.13% to close the week at 100.06. The yield on the 10-yr U.S. Treasury was up 4 bps on the week, closing at 4.48%.
Have a wonderful weekend!
Morgan Lewis
Investment Strategist & Co-Portfolio Manager
MWM LLC
