• Liquidity Flow Means Life Or Death For Equities
• War In Middle East: Oil Up Now + Long Term Bullish Thesis Unchanged
• Gold Drop Is A Short Term Rush To Raise Cash

"You go back to margin debt being at all time highs, $1.28 trillion. Investors are as bullish as they've ever been, and this is particularly retail investors. So the expectation is—whether because of AI, whether because of accommodative rates and the new Fed regime, which is promising to deliver even higher asset prices in the future via lower rates and access to capital—keep the liquidity game going if they can deliver. And that's where I'd have some questions." —David McAlvany

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Kevin: Welcome to the McAlvany Weekly Commentary. I'm Kevin Orrick along with David McAlvany.David, this morning in the meeting you brought up something. One of my favorite subjects, strangely enough, is the Riemann hypothesis, which is a mathematical problem that still has yet to be proven, even though it's assumed to be correct. And you brought up four items, and you said there's a difference between an unsolvable problem and a solvable problem. And I'd like you to outline that, if you would, just for a moment, because I thought it was interesting. The solvable problems really boil down to will, and the unsolvable problems, like the Riemann hypothesis up to this point, boils down to intellect.David: Yeah. I laid it out as the introduction potentially for our client call, which is this Thursday. And a multiple choice question: which of these problems is solvable? The Collatz conjecture, the Riemann hypothesis.Kevin: Those mathematical conjectures and hypothesis, they're not solved yet.David: Or $162 trillion in unfunded liabilities, $68.97 trillion in current debt, if you're talking about the gross number. And the last two theoretically are solvable. We can do something about it, but we lack the will to.Kevin: Right.David: So what I was describing is the Greek curse of akrasia, which is weakness of will. We don't have the political will to deal with it. In fact, in the context of a democracy, it makes sense that our budget deficits will continue to swell as politicians continue to offer more and more promises to pay in order to collect votes.Kevin: Yeah. It was interesting. I've been watching a lot about the war, obviously, that's broken out. And one of the generals that was interviewed, a retired general on the news, he said, "War is just simply breaking the will of your enemy." And that's what we're in the process of right now. We're hoping from the West side, or the non-Iranian side, that the will of the Iranians, it's going to break. But when you're talking about debt in the trillions, in the tens of trillions, and we all have benefits that would be taken away if that debt was to be, let's say, solved the hard way by paying it. Okay. Do we really have the will to win that war?David: Yeah. And keep in mind, one of those numbers is a fairly conservative estimate. The unfunded liabilities at $160-something trillion. Larry Kotlikoff, when he was on our program a number of years ago, had already penciled the number at well over $200 trillion. So pick your number. It depends on what you're counting into unfunded liabilities, there's ways of goosing it, but a conservative estimate would be in the 160s.Kevin: And it would take austerity with a capital A to actually pay that off, not more debt.David: Oh, yeah. You'd have to increase revenue, you'd have to decrease your expenses considerably, and maybe even let down some of the folks who are in line to receive those benefits. Social Security being one of those things where maybe it's means tested, maybe it's you push the retirement age to 75, 80, 85. What is a number that makes sense? We penciled the numbers out originally when we created the program with a much lower life expectancy. So the math was in our favor then. The math's not really in our favor now. Yet, there is a way to solve it. And it's just a question of whether or not we have an economic or political will to do it.Kevin: Dave, you've been studying reversion to the mean. You read Jeremy Grantham's book, and his thesis is that everything returns to its natural market value at some point, a reversion to the mean. And yet right now, the volatility that we're seeing in the market right now, that's an expression of the need for unlimited liquidity, liquidity that's going to have to be paid back because it's debt.David: Yeah. I would say the wild volatile swings in the market are an expression of an uncertain market direction. And so you've got people who are very positive. They'll push it up a week, a day, a month, and then it gets pushed down dramatically, a week, a day, a month. And today I believe most critically, there is an uncertain source of liquidity. In fact, the scramble for liquidity is on.You can see the hallmarks of that across all asset classes. And we could spend all of today looking at the Middle East, but there are, I think, other more critical factors in the financial markets. I'll say that uncertainty exacerbated by Middle East conflict comes at a very inconvenient time for both the private markets and the publicly traded markets as well. And we'll start there, and then circle back to the Middle East, oil and gold.Kevin: Well, you outlined last week the liquidity problems that are already showing up in private equity. So I'd like to talk about that today, but let's go ahead and start where the markets are most vulnerable, okay? Right now, it's a liquidity need and a momentum need, isn't it?David: Yeah. Well, any bet that is leveraged is what comes under pressure first. So that's where the markets are most vulnerable. Your leveraged speculative community has to unwind trades. Whatever they own, and own on leverage, is at risk when the market starts to move against them. And that's in either direction. So leverage moves asset prices higher and faster, wind conditions are supportive, and it behaves like a trap door when the conditions change.So we have practically harassed you, our listeners, with a discussion on private credit and private equity since October of last year, because these are leveraged bets with very limited liquidity. When there's no one in the market to provide liquidity, the dynamic of liquidity drying up quickly becomes an issue of solvency, and that's what has been in the news in recent weeks.We have both liquidity and solvency issues emerging in the private markets, and I think it is likely to spill over into the public markets unless we have some form of intervention, whether that's verbal or an actual commitment from the Fed and the Treasury.Kevin: Which could be very inflationary. And so unless we have some sort of bailout coming in, like for private equity, we've got probably higher interest rates, right? It costs more. So that'll show up in the bond market, won't it?David: Yeah. I think the game for leveraged buyouts, what we also today refer to as private credit, it changed as far back as 2021, 2022. And as the bond market in 2022 experienced its worst year since 1753—Kevin: Really?David: —with a sharp rise in interest rates, the future success of private credit came into question. The whole business model, people should have been asking the question then, "How is this going to work with higher rates?" And the deals that were put together prior to 2021—referred to as vintage year offerings—were immediately under pressure, with the one benefit of not having to be marked to market immediately.Kevin: They were able to hide behind— The real price was not actually available, right?David: Yeah. They delay reporting three to six months. So delayed reporting in the first half of 2022 kept there from being a panic in private credit and private equity, particularly private equity. Those portfolios appeared to rise above the public equity market declines, and they appear to be differentiated. So people said, "Hey, this is why we own alternatives," when in fact the opposite was true. There was still a degradation in the security of the underlying assets. It was just not immediately apparent.Kevin: But the conditions are changing now.David: And the primary condition of cheap credit, that is what has changed. So, through a variety of methods—payment in kind, evergreening, offering assets for sale to new entities controlled by the same companies— And there's a successful exit. If you sell from entity A and it's bought by entity B—but it's not really an exit if you also own entity B. The question is, did you let your limited partners out and create a new class of bag holder limited partners?Kevin: It's like a shell game in a way, isn't it?David: Yeah. So those assets have been retained. They were not forced to be liquidated or marked to market. And of course, these are companies that are well past the intended exit dates. 32,000 companies on the books which were intended for— It was the equivalent in real estate to a fix and flip, and they're still sitting there.Kevin: They're holding the property.David: Yeah. So the hope is that rates come down, multiples improve, and that allows for an exit from those companies. So far, that has not happened at a material level. And as time wears on, interest payments are increasing the pressure on the underlying assets.Kevin: Well, one of the reasons we don't see this is, this is considered like shadow banking, isn't it? It's like shadow equity, shadow banking. We don't actually see these numbers reported on a daily basis on a ticker.David: Yeah. Well, one man's problem is another man's opportunity. And in this case, it was the same person. So private equity has a problem, so you just launch a new shingle, call it private credit. And so the pivot to private credit has been crucial for extending and pretending. Private credit is typically offered at floating rates, which, again, ratchets up the income potential to the private credit operator, even as pressures mount for the companies, the debtors that are in those structures. So private equity picked a source of liquidity that has a longer term time horizon, and we've talked about that since October as well.Kevin: The insurance companies.David: Insurance companies, exactly.Kevin: Which, think about that, Dave, that's the one thing everyone just assumes is without infection, but what you're talking about is this is an infection that's built into the insurance company system.David: Yeah. Buying out insurance companies gave them an opportunity to avoid redemption requests by selling credit instruments directly into the portfolios of those insurance companies. So where annuity investors and policy owners, they don't have a clue how their premiums are being invested. And frankly they have no control over the redemption requests, which, it's a brilliant move by private equity and the private credit operators, but it's a huge and it's a growing systemic risk.Kevin: One of the things that we know about insurance companies, though, is even through the depression, they have protected each other. They have really prided themselves in being able to self-regulate. I'm wondering, where's the regulation on this, the self-regulation?David: A number of regulators are asking questions about the quality of the ratings which are being put on this paper. And the indictment has been, these companies have done what is referred to as ratings shopping. You find somebody who will say, "It smells like AAA to me. You should be fine."Kevin: Let us buy you a steak dinner. We needed a AAA.David: And there you go. You've got quality paper being put into these insurance companies. Where you see strain in the private equity and private markets today is through redemption requests, because not all those pieces of paper—Kevin: Show me the money.David: —not all of the IOUs are held by the insurance companies. A lot of them are pension funds, high net worth individuals, family offices. And when pensions and individual investors begin to ask for their money back, the illiquid nature of the underlying assets, that's when it becomes a problem. So what we described last week as a liquidity mismatch—Kevin: Right, the Blue Owl thing?David: Yeah. This forced Blue Owl to suspend redemptions for one of its funds in recent weeks in order to limit the damage from forced liquidations of those underlying assets. And you can see the appeal. If you just reflect on it, you can see the appeal of utilizing insurance assets as a source of funding for leveraged loans, for CLOs.Ultimately, these are supporting private equity assets. Imagine a depositor base which can't foment a run on cash. We're always worried about bank runs. You go back to the history of the 1930s, and you had thousands of banks failing because depositors wanted their cash back, but the money had been loaned out. And so you had illiquidity tied to illiquid loans, and yet depositors wanted their cash back. And that difference, that is the classic—Kevin: That's the Jimmy Stewart moment, isn't it, in It's a Wonderful Life? But the money's just not there.David: But what a beautiful thing with the insurance companies because you can't trigger a run. Nobody even knows. You can't ask for your money back. So banks face a liquidity mismatch. In fact, that's kind of implicit to their business model, which is why regulators are so strict about having adequate reserves. So that in the event of a run on deposit or cash, you've reduced the risk of forced liquidations, whether it's of securities or longer term loans, doesn't damage the loan book. There has to be a cushion. Private credit has no such cushion. And private equity has no such cushion. Insurance assets represent a non-runnable source of liquidity, and that's of course why they've been flogging it, abusing it.Kevin: So this takes me back to what we were talking about, breaking the will. Momentum in a way is a little bit like will. If you think about it, if you go, "Hey, everybody's winning this war. You guys just need to come with us." That's fine until something looks like they're not winning anymore. Okay, a liquidity crisis is a lot like that, too. It's like, wait a second, we just ran past the enemy lines and now what's behind us?David: Well, private equity, the leveraged buyout game requires continual momentum. It requires new money all the time. You've got an original investor base, and somebody's got to step in and buy those assets from the existing investor base. That's the next batch.Kevin: And that continues as long as you can keep borrowing, too, right?David: Yeah. Continued activity is necessary. So the model is buy and flip, rinse and repeat. In some respects, the whole space reminds me a little bit of the shale patch, with leverage being a pillar to leverage buyouts. So it's buy, baby, buy versus drill, baby, drill. And when you have decline rates in the oil patch, that starts to change the game. It requires that you continue to drill to keep production up.Decline rates, like interest costs, I think they ultimately force the continued investment into new assets to keep the game going, requiring a continual flow of capital or access to liquidity in one form or another, either into drilling projects or, in this case, the turnover or churn of assets in the private equity portfolio. New capital allows for the exit of the old capital.Kevin: Okay. So when that starts to wane, what happens to private equity?David: You have a problem. Similar to the oil patch, when banks limit available credit for drilling projects, the investments come under pressure. I'm basically equating decline rates with the long-term negative compounding of interest, which is, again, when you think about private equity and how they've leveraged up these portfolios, the longer you hold the asset, the greater the bite of those interest payments becomes, you're negatively compounding. And so optimally you're trying to sell these portfolios in three to five years. We mentioned last week that we're now up to a seven-year hold period, and that may get extended further.Kevin: You remember the movie Wall Street back in the '80s, the late '80s. Gordon Gecko was into this rinse and repeat. You buy, you dismantle, you resell into the market, but he was not into long-term holding. And that was the whole theme of the movie. There is value investing that goes forever, like Warren Buffet.David: And that's a different model, which is that he is essentially a buyout company as well, but he operates with the intention of keeping companies on a more or less permanent basis and benefiting from the collection and the recycling of cash flows. Private equity is different in that buying out your private companies or taking public companies private is with the express intent of adding financial engineering, adding leverage and trying to resell those assets at higher multiples, pocketing the gains. So in an environment of decreasing interest rates, that financial engineering works brilliantly. This has built some of the great fortunes of the last 20, 25 years.Kevin: When it gets cheaper, is what you're saying.David: That's right. Which is why the best days of private equity ended in late 2021 and early 2022. As interest rates begin to increase, those days are over.Kevin: Okay. So pricing that we're seeing right now, like in the regular equity markets, not the private equity markets, are you thinking we're near a top?David: Yeah. We keep on harping on private credit in part because it is at the periphery of the credit markets. It is the shadow banking.Kevin: You can't see it.David: It's a way to finance deals and do it using unconventional means. And so when there's problems within the credit markets, they don't tend to stay isolated. They tend to spread. And so liquidity stress in one part of the credit markets often spills over into other parts of credit markets. That's that periphery to core migration. So let's review where the public markets are. We've probably put in a top in NASDAQ and the S&P and the Dow. Mean reversion would be normal. It should be expected in fact.Kevin: So the ratios though are still very high. Okay. So we may have put in a top, but like we brought up Warren Buffett. The Buffet ratio right now, is it close to an all-time high or is it at an all-time high?David: Well, this is where valuations can be insightful into where you're at in the cycle. Are you mid-cycle, are you end of cycle, beginning of cycle? And so we don't know if, given the flaky nature of fiat currencies, if 50,000 on the Dow is a success story, or over 100,000 on the Dow is a success story. How much of the gains have come from dollar devaluation and just a repricing of assets? What you end up seeing in something like the Buffet ratio is kind of a true measure of value.Kevin: Because it's based on GDP.David: Yeah. So you're comparing capitalization to GDP. You could also look at M2. There's a number of ways of slicing and dicing that.Kevin: Or the Shiller, Shiller PE?David: Yeah. Buffet ratio is currently 218%. Over 160 and you're significantly overvalued. That's overvalued territory, over 160. The CAPE, popularly known as the Shiller PE, which takes the 10-year rolling average of the price earnings ratio. That is considered rich if it's over 20. And we're currently north of 40.Kevin: I think 16 is the mean, that's just sort of the average on the price earnings ratio.David: Yeah. If you're calling for a middle point. So again, 20 is expensive, 40 is very, very rich. Margin debt in January hit its eighth consecutive record. It was up 4.4% in January, 1.28 trillion. It's never been higher. And if you wanted to measure that against money supply, it just matched its all-time high reading. So both in nominal terms and then relative to number of dollars in the system— Again, these are things that tell you you're at the end of the road. And going back to Jeremy Grantham for a moment, that notion that markets are efficient, he would say, absolutely not. What we have is overvaluation, undervaluation, and the market's constantly fluctuating between those two points.Kevin: The only thing that's efficient is the mean, and it's something no one really wants to remember.David: Well, as long as you're soaring past that on the upside, it's great. Remember it over your shoulder in the rear view mirror, but this is where valuation metrics help you know how much is in the rear view mirror, perhaps instead what you have to look forward to, which is very low returns going forward if you've overpaid for assets, which, again, we're just saying essentially you can account for all of these things in standard deviation terms. We're well past the two standard deviation mark into the third standard deviation, which accounts for 99.5%, 99.9% of all time. In other words, there's a fraction of 1% of time where markets have been more overvalued than they are today.Kevin: So for the person with the 60-40 portfolio, you better be looking at 60-20-20, right?David: Yeah. Well, and again, you go back to margin debt being at all-time highs, 1.28 trillion, investors are as bullish as they've ever been. And this is particularly retail investors. So the expectation is—whether because of AI, whether because of accommodative rates and a new Fed regime which is promising to deliver even higher asset prices in the future via lower rates and access to capital—keep the liquidity game going, if they can deliver. And that's where I have some questions.I agree with you that the 60-40 portfolio in light of stretched valuations and the higher probability reversion to the mean means that you could certainly suffer on the 60 part. And what happens in the bond market, that's another story.Kevin: Okay. So I'm going to bring in what a lot of people would say, "Oh, well, this is an unknown that we didn't know was happening." So let's talk about from a market perspective. People can watch the news to see what's going on from a kinetic perspective of the war. But from a market perspective, oil, okay, and some of the things right now that are directly influenced, what do you think?David: Well, more than just moms and Mossad understand what was getting ready to happen. So did Iran. It's been the last three, four weeks that they've been moving most of what they have in storage on Kharg Island, which is responsible for getting close to two of their three million barrels of production a day out and distributed to the world. They've put them on tankers and they wanted it off the island. So—Kevin: So they were preparing ahead of time.David: They were preparing. Now I don't know if they were preparing for a first strike themselves or if they were preparing for what they were kind of feeling. I don't know. So inner conflict in the Middle East, you've got Monday's notable shift in the global bond market. If I'm looking at anything, it's pretty natural to see war in the Middle East impacts the price of oil and potentially natural gas.Kevin: Sure.David: That's volatility that's pretty paint by numbers.Kevin: But you're also looking at interest rates, bonds.David: The bond market is very interesting. Oil moved higher following the attacks on Iran, and the implication of higher oil is that inflation could well surprise on the upside.Kevin: Which pushes interest rates up, long-term interest rates.David: Instead of seeing a safe haven bid for Treasuries, which should take interest rates lower. All this week you've got the UK, German, US yields going higher.Kevin: Which is unusual because when war used to break out—David: It's a safe haven bid.Kevin: —interest rates would drop.David: And so maybe the conjecture is that this is not a short-term engagement. Because a spike in the price of oil, if it lasts for three days, 12 days, 30 days, 60 days really doesn't filter into real world economy. It takes time for elevated oil prices to filter through and for the inflationary effects to be felt.But the bond market responded immediately, and I think that's a critical development to watch. Higher rates lead to a tightening of liquidity across the financial markets. And so this is where all of these things are interconnected. It's not just what's happening in the oil market vis-a-vis the Middle East, it's also what's happening in the bond market and the knock-on effects that that has into both private equity, private credit, and the public markets.Kevin: And, at the same time, a scramble for liquidity in other areas.David: Yeah. So if you needed a catalyst for negativity in US equities, you now have one in the headlines. And of course, we already had a catalyst from AI, projections of white collar job losses, prognostications of software companies unable to compete with the tools provided by AI. Tech specifically, I'm thinking of software very acutely, under pressure from a reassessment of the implications of AI development.Now you have war. And time will tell, but the potential of interest rates increasing at the long end of the curve, that is what the bond market is pricing in at present. And if that continues, I think it's even more impactful than, on a lag effect, the inflationary impacts. They're tied, obviously. They're tied together. But what I'm thinking about the increase in interest rates, yes, it's driven by inflation, but the increase in interest rates has far more dramatic implications for the whole structure of the financial markets on a global basis.Kevin: Because it makes money expensive. Now, when money's expensive and you need it, okay, you're going to look at your most liquid items. And one of the things that we've seen in the past, like in 2008 when the stock market— All of a sudden there was liquidity that was dried up. Gold. You would think that gold would have initially gone up. Most people would have thought that, but gold went down because it is so liquid.Actually, that's sort of the knock on the price. People sell the most liquid asset that they have, whether it's cash or gold, to raise liquidity. And so let's talk about gold because gold's in a correction right now, at a period of time where people are like, "Well, why aren't people just piling in because of the geopolitical risk?"David: First of all, you sell what you can. So that's what is most liquid, what is liquid. And you also sell what has significant gains.Kevin: That's true.David: So if you need liquidity—Kevin: Gold's got huge gains.David: Right. So your leverage players, these are the ones who feel the change in interest rates. These are the ones that are most exposed. And when there's volatility, if it moves against them, they have to act fast to manage their P&Ls. And to do that effectively, you look at any asset, it could be large cap stocks. And obviously the big winner from 2025, 50, 60% gains in gold, 150% gains in the precious metals miners.Kevin: You're not selling because you want to, you're selling because you have to, and it's the best thing to sell at the time.David: Leverage is a huge part of that. So increased or spastic volatility forces your leveraged players to act. It's not a real read on those markets. It is a current condition, but it's also something that tends to pass. Thinking about gold, if liquidity dynamics are shifting, you may be in one of those awkward interim periods where Wall Street speculators are gathering in as much liquidity as they can, and gold is an excellent source of liquidity.Long positions in gold are cut to shore up cash on the balance sheet. That is a normal occurrence if and when you enter a phase of deleveraging. So we don't necessarily have to go any further in the process of deleveraging. It really does depend, what do we hear from Kashkari this week? What do we hear from Waller? What do we hear from the Kansas City Fed? There's a number of Fed speeches already on schedule to be delivered. Their speeches may be being revised right now to make sure that we don't have dysfunction become a feature versus a bug.Kevin: Well, with gold, though, we were already in a technical correction. That had already started before the war.David: Yeah. Already in a corrective phase for the precious metals, started at the end of January. And as of last week, the pre-war, we were signaling a completion. But broader market considerations and liquidity needs can flip that script at any time, for a time. So I think it's short-lived, but it's obviously uncomfortable. The metals are either finishing off their corrective phase here now, or they're in for a more extended decline. I don't think this is the end of a bull market, but a market subject to deleveraging pressure nonetheless.Kevin: Well, this could be a buyer's opportunity with these corrections if you look at the long-term trend.David: Yeah. I think what I've seen amongst metals analysts, some of the best in Europe, is that we've seen a healthy recovery off of the January and early February lows. Silver reached a 61.8% retracement level and that's—Kevin: That's the Fibonacci number.David: That's correct. That's the level at which it corrected off of. We're in that correction now. And they're looking at a variety of measures, whether it's momentum or relative strength, we're already getting back to an overbought level. So to see things calm down, that was and is predictable. Do we catch more downside momentum? I don't know. We'll have to see. I think that when you look at the broader equity markets, this is where I would be concerned. We're at the end of a bull market in equities.Kevin: So Nasdaq, S&P.David: And we're midstream in a bull market in precious metals. So again, if you count the buyers and count who has been coming into the markets, you're fully invested. You need more buyers, and yet there are no more buyers in equities.Kevin: So be a Buffett with gold, right? Which is the longer-term hold. Okay. And you don't want to be leveraged right now in these markets.David: No, I would not be leveraged in these markets. But when you look at the equity markets, and again, coming back to Buffett, there is a good reason for him to be sitting in the largest cash positions ever.And in fact, I think they're probably getting criticized for it. I saw the new CEO out this week saying, "Look, nothing's changed. We do continue to invest as we have. The models haven't shifted." What I read between the lines there is that people are uncomfortable with them not being fully invested, having such a high percentage in cash.Kevin: Look what we're missing. Right.David: Now all of a sudden with a market correction, it starts to look genius. But looking at market over-valuation, I think you're primed for a minimum 25% correction.Kevin: Really?David: And potentially a 40 to 50% decline in the S&P, Dow, and Nasdaq.Kevin: Wow.David: What makes me think this is liquidity-driven is that the moves lower have been blind to asset class distinction. It's just a mad scramble for cash. So Brent Crude is up from the close on Friday. It was trading at 73 on Friday, trading at 83 early this week, roughly a 14% gain. And oil producers are flat to down, flat to down.Kevin: Wow. So even though oil's up, the producers, they're being sold right now for liquidity.David: Still dealing with a scramble for liquidity. That suggests that in spite of the commodity breakout, credit stress is manifesting. And public markets are, across the board, shaky. Policymakers may be sidelined. And if you wanted to know where the real stress for your leveraged speculator is, it's when will there be a form of intervention, whether it's verbal or otherwise.And if there's hesitation on the part of the Fed or Treasury, that's where real stress— You could see it snowball, and so the leveraged speculator has to take their leverage seriously and de-risk. But that concern with policymaker intervention, that opens up broad market concerns. And so, again, we come back to the necessary conditions for an equity market advance are dissipating quickly. Liquidity is the key to both the public and private markets, and without it, all kinds of bad things happen.Kevin: And you were talking about margin debt, how high it is right now, but the confidence to go out and take more margin debt has got to be also backing off at this point.David: Well, coming back to this: liquidity is key. My preference has been and will continue to be gold ounces as a superior form of liquidity.Kevin: Right. And then cash behind that.David: The problem is, you don't pay your bills with ounces, and your margin calls aren't paid in ounces. So you have to move $2 in order to keep your other bets afloat. So even if your liquidity preference, like mine, is for gold, if you're a leveraged speculator, sorry, you're selling, you're raising cash to make a cash payment and keep the balance sheet afloat.Kevin: I've had to do that. I've had to do that when the kids went to school. I had to sell gold to pay for school. Okay. Now that was a different kind of—David: Liquidity crunch.Kevin: —liquidity requirement. Yeah, nonetheless.David: Well, for today, it would seem that complex structured products are lacking liquidity. So you're seeing BlackRock, you're seeing Apollo, you're seeing KKR, you're seeing Texas Pacific Group, you're seeing Blue Owl. They're under pressure and the market as a whole is scrambling for liquidity.You can just remember the margin numbers we talked about earlier. How confident was the investing public earlier this week, last week, two weeks ago when we got the most recent margin numbers in, buying stocks on margin, right? 1.28 trillion in previously over-confident betting, and this week it's getting a wake-up call.Kevin: Okay. So let's talk about this, though, the differentiation of, let's say, selling gold short-term to raise liquidity versus selling large cap stocks. What would be the difference longer-term? You had talked about how the stock market probably has peaked. The gold market is probably halfway through—or even less—its bull market. So those stocks that are being sold right now to raise liquidity, maybe the blue chip types of stocks, they may not be rebought.David: Well, the AI narrative has helped prop up the stock market indices very well.Kevin: Right. Mag 7.David: And so that narrative has shifted, and if you look over the last two to three weeks, it has shifted dramatically. It has shifted dramatically. Now all of a sudden, what is your faith based on and what is your confidence grounded in? This was the revolution, productivity revolution, technology revolution, economic revolution.We had folks in the White House saying, "This AI is what's going to deliver 15% GDP growth." Well, I don't know exactly how that happens when the Anthropic CEO says, "Yeah, we're going to negatively affect 50% of white collar jobs." Okay. So I'm sorry, GDP is still predominantly 68% consumption based. If you've got white collar folks who don't have as much work, don't have as much pay, don't have as much consumption, how are you propping up— Where's it coming from?Kevin: I think you do the matrix, is what you do, is those people who lose their jobs just become batteries to run.David: Plug them in.Kevin: Yeah, just plug them in. They can just become batteries to run the energy for the AI system.David: Maybe that's the modern day miracle.Kevin: I think that's how we get the GDP growth.David: Well, we keep on talking about one of the biggest issues, the revolution that needs to occur with renewable energy, think of wind and solar, is that we have no reliable way of storing them.Kevin: Batteries.David: Yeah. Well, at least in the matrix, they are producers of energy. Maybe we can figure out how to store as well.Kevin: I think we're going dark here, but it feels that way.David: Well, to your question, you sell what is most liquid in a market where liquidity is scarce. Large caps, that fits the bill; gold and silver, that fits the bill, unfortunately, today. Short-term pain, I think it's very different than the equation of long-term gain, particularly with the metals. We are in a structural bull market with many years ahead of us.Kevin: Okay. But what about private equity, private credit, and crypto?David: The same can't be said for the S&P, the Dow, the Nasdaq, crypto. We spent four years watching bitcoin march from 68 to 126, and it was less than six months for it to get cut in half. The bloom is off that rose. The bloom is off the rose. The enthusiasm for crypto is now facing an uphill battle. I saw that the man with the smartest IQ on the planet—Kevin: Right. I saw that too.David: Yeah. Was calling for, I think it was either 268- or $278,000 bitcoin.Kevin: By February of 2026. Whoops.David: It's March.Kevin: Yeah. Now, it's March.David: Well, IQ counts for something, I know, but it doesn't necessarily help if you're trading crypto.Kevin: Yeah. I will say this, though. I've had clients who made money in crypto who converted it to gold ahead of time and they saw through it. They understood what they were in and they converted it to something real.David: I think it's a different story. Their best days are behind them. That's not the case for hard assets. That's not the case for metals. And more important than short-term upward gains in oil, this is where I would draw a key distinction. The war was never part of our energy thesis.Kevin: You mean you guys' management thesis?David: Yeah.Kevin: You were in for a longer term. Yeah.David: It's supply and demand driven in a way that short term disruptions to supply are today. It's obscuring the real facts. There's a war premium and that war premium can be resolved if we have peace tomorrow, that $10 gain is gone.Kevin: But that can be noise in the form of—David: It absolutely doesn't matter. I'm talking about long-term supply issues. Non-OPEC growth as of March is done. Market watchers care about the events in the Middle East because of OPEC production. And that certainly matters over the next 30 days, 60 days, 90 days, 120 days. And to the degree that infrastructure is damaged and you don't have exports from Iraq or Saudi Arabia. I mean, yes, it's impactful, but that's not the driver of the energy complex over the next three to five years. And that's where the fundamentals are setting up brilliantly. I am not bullish on oil because of what's happened from Saturday to the present.Kevin: Or the Venezuelan thing earlier.David: Correct, correct.Kevin: Okay. So let me ask you a question, though, because you talk about three to five year thinking. I think a question in a lot of our listeners' mind is, how much cash is appropriate right now? How much gold is appropriate right now? Using the longer term aspect, okay? Not talking about short term volatility here.David: Yeah. Well, where I think it's important to keep a level head is, first of all, metals don't face any form of existential risk.Kevin: Right.David: Therein, you're looking at a very different kind of uncomfortable. So we have price volatility. I think it's largely driven by a scramble for liquidity from leveraged speculators. Okay. Well, that's one version of uncomfortability.Kevin: But some of this stuff does face an existential threat, right?David: Yeah.Kevin: It may not even be around in five years.David: Every operator, every publicly traded company that has a lot of debt on their balance sheet, which is a form of leverage, they are at risk. So unleveraged companies face volatility, but not necessarily existential risk. Again, it's just a question of making less money, but being able to live and fight another day. When you have debt on the balance sheet, you may not make enough money to satisfy your creditors, and that's your solvency issue.Kevin: I'm thinking 26 years ago about BlackBerry. BlackBerry was the stock like the current AI that was going to go forever. Where is BlackBerry these days? They faced an existential threat and they didn't exist.David: Well, so the question remains— I mean, in a broader market liquidation, everything gets sold.Kevin: Right.David: Quality, non-quality. At the end of the day, the question remains, what is the right level of cash? And then I would say the right level of metals as well. Last week, as a management company, we were willing to increase our exposure to precious metals on the basis that a strong technical breakout had been registered. We had the highest monthly close on record for silver, weekly and monthly close. Very strong signal going forward. Okay?Kevin: But you had to pivot when you saw different conditions.David: This week we have to reverse that.Kevin: Yeah.David: It's not a problem. If the facts change, you'd better, as well.Kevin: Let's talk about gold stocks, then. Okay. You were talking about oil producers and how they actually fell or they stayed sideways while oil went up. Right now, we've got gold going down. How do you feel about the guys who actually pull it out of the ground?David: Yeah. Well, it's a different kind of leverage. It's not like the speculators we were talking about earlier, but they do have operating leverage to the underlying asset. And as the price goes higher, their profits and free cash flow increase pretty considerably. And of course, if you see diminishment in the commodity price, their free cash flow diminishes as well.If you're asking the question about what existential risk is there to price volatility, it's a question of thresholds and how far away from those thresholds we are. So you're all in sustaining costs cover everything from company operations to—which is kind of your general and administrative expenses to the cost of oil as you're moving big Caterpillar trailers, trucks around and things like that.Kevin: So what would that be per ounce of gold?David: Yeah, the industry costs of production are in the neighborhood of $1,700 for gold.Kevin: Really?David: And if we keep it in round numbers, let's say roughly $20 for silver, silver producers.Kevin: That's the kind of business you want to have. It costs you 1,700 bucks to produce something that's still 5,000 bucks.David: Right. So margins are strong. They remain way above any other time in history, even if you assume much lower prices in gold. I mean, if we took another $1,000 off, $1,200 off the gold price, $3,800 gold, $50 silver.Kevin: You're not predicting that, but even if we did, right?David: That's correct. I'm not predicting those numbers, but just want to first make clear that physical metals don't carry that operating risk. They also don't carry the leveraged gains—two to two and a half times the gains—in a rising market. The operators are trading near all time highs as a reflection of very solid margins. If you cut back those margins, you're still talking about margins that they've never recorded in company history. Take $1,000 off the gold price.Kevin: Really? This is the highest margin they've ever had.David: They're cranking free cash flow. And so I think you see an overreaction within the miners, which is natural because you start to extrapolate. And this is the problem with any market. A small decline may be a big decline. How do we know it's not a big decline? Well, we don't know. Except that we've got fundamentals which do argue for a very supportive macro picture for the metals.And I come back to where we started, whether it's the Riemann hypothesis or Collatz conjecture or the two very solvable problems that we don't have the will to solve. A part of the reason why there is longevity to this move in the metals is because on a global basis we have gorged on debt and we have to ultimately pay it off—not likely—with a growing—Kevin: We don't have the will, but we're going to have to ultimately pay it off somehow.David: You could default on it, which is a game changer for the financial industry as a whole, and would be an extinction event for the financial world, because one man's liability is another man's asset, and you're talking about the financial players, they treat those IOUs as their assets. So you default on the debt. Guess what happens to the assets, it goes to zero. You're talking about insolvency for the financial system. Not tolerable.Kevin: Right. So the question is, how do you keep the game going?David: You keep the game going by running inflation. You keep the game going by devaluing your currencies. And this is why central banks, this is why high net worth individuals, family offices, and smaller scale investors too, with the— You don't need Mossad-like insight, you need mom's insight. What is the grocery bill this month?Kevin: Right.David: Well, I can tell you that a year ago, I walked away with two bags and today I'm walking away with one for the same money. And so the reality of inflation and the backdrop that we have, I think, is and continues to be incredibly supportive for the metals. This is, as we've talked about many times, a monetary regime change and a shift from a focus on US dollar hegemony to a more diverse monetary structure globally, and it favors gold for many reasons.I see the correction which began in January—which may continue or may be over—as something that is a stop off point on the way to considerably higher numbers. But if you run with price assumptions of $3,800 gold, $50 silver, respectively, for the metals, margins are robust enough for the producers to pay down their debt. And a lot of them have already moved to a net cash position. They've got enough that they could be debt free now and they can return profits in the forms of dividends and share buybacks. In other words, lots of volatility, no extinction event.Kevin: Don't be distracted by the noise.David: Yeah.Kevin: Stick with the fundamentals.David: Yeah. Very different story if you're talking about junior miners, if you're talking about exploration companies, how long a correction extends is material for someone that has no cash flow.Kevin: Right. Right.David: There is an important distinction.Kevin: This is why you need analysts.David: Not all companies are created equal. Not all companies have the same balance sheet, have the same access to assets or in the right jurisdictions, et cetera, et cetera. So the macro setup remains firmly in place for a move to $8,000 gold, $200-plus silver. Very interesting. In the context of this correction, you've got Bank of America, which has migrated their three-month prediction for the price of silver to $150.Kevin: From here?David: Yeah.Kevin: From here? That's their three-month prediction?David: Citigroup between, I think it was 135 to 309 within this calendar year.Kevin: Wow.David: So very common to see Wall Street firms begin to migrate north their price expectations when prices are trending higher, not so common to see them calling for higher prices—Kevin: When you've got a crash or a correction.David: In the middle of a correction.Kevin: Yeah.David: Are we to assume that this is the end of a bull market in metals? Enough Wall Street firms have now had their attention focused on the supply-demand fundamentals, particularly on silver, to start looking at 135, 150, even $300 an ounce.Kevin: Six years of deficit on the supply-demand.David: Yeah. That doesn't make this week any easier to swallow than it does the final days of January, but, nevertheless, this is where we find ourselves.

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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, or 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.

• The Haven Status Of U.S. Treasuries Is Eroding
• Olympic Medal Gold & Gold Investment Similarities to 1980
• Blue Owl (Canary) Suspends Payments Indefinitely

John Exter's Inverted Liquid Pyramid "It's telling us a lot in recent years, the price of gold. Geopolitics is in the frame, and with a disruption in relationships—not just trade relationships—there's a signal there in the gold market. But over-indebtedness is also in the frame, and over-indebtedness is a key factor driving the durability of this gold cycle. I think that's one of the most critical takeaways. If you're looking back at where prices were, 1980 gold hit a peak. Are we at a peak in gold today? I would say again, over-indebtedness is a key factor driving the durability of this gold cycle." —David McAlvany

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Kevin: Welcome to the McAlvany Weekly Commentary. I'm Kevin Orrick, along with David McAlvany.Well, David, I certainly wish we would fight most of our wars on the ice rather than with weaponry. Now, I'm thinking back to 1980. But even now, I mean, look at what happened on Sunday and Saturday with the women's and the men's team.David: Amazing. The women did great overtime and a victory over the Canadians. Again, the men's hockey team, US beating Canadians. Probably the most meaningful Olympic gold handed out this year, meaningful to me, was the US men's hockey win against the Canadians.Kevin: You remember the 1980 game, how critical that was. Well, the sequence of events that had occurred in that time frame with Russia and with America, and the wars that were going on in Afghanistan, that hockey game was an amazing relief. And you were alive at the time.David: Yeah, I think the win this week was purely sentimental for me, a walk down memory lane. Obviously, 1980 was a long time ago, and I watched that victory 46 years ago, which was not only a massive upset against the Soviet team— They had won in '56 and '64 and '68 and '72 and '76. I mean, they were just unstoppable.Kevin: Unbeatable, yeah.David: Until 1980. And then of course they picked it back up again in '84 and '88 and '92 and 2018. The Russian team has always been phenomenal. At that time, it was a shot in the arm for American patriotism and national pride, at a time when the Soviets, as you mentioned, were invading Afghanistan, stoking revolutions in Central America and the Caribbean Basin, and setting the world on edge as they sought global dominance. It was also a shot across the bow, don't count out the USA.Kevin: Yeah, and for people who were not alive at that time, it's hard to really help them get their head around what that felt like. We had the Iranian hostage crisis going on, we had Russia going into Afghanistan. Khrushchev had said, about 15 years before, that he was going to try to dominate, or Russia would dominate, all the mineral resources and the petroleum resources in the world. And it looked like that was happening.David: And yet under the surface there was something quite different. The last half of Sun Tzu's dictum was, I think, being applied by the Russians, appear weak when you are strong and strong when you are weak. And the hockey team was strong, but the empire was in fact in collapse, and all the Russians had was a show of strength, but in 1980 even that fell apart.So less than a decade later, the Soviet empire was in shambles. Gorbachev launched his Perestroika and Glasnost shortly after coming to power in 1985. Chernobyl opened why the idea that Soviet engineering was not indomitable. And by 1988, the Baltics were pushing for sovereignty. Estonia was the first to declare it. The Berlin Wall fell in 1989, effectively signaling the beginning of the end for everything behind the Iron Curtain. And by March of 1990, 10 years later—after the hockey game of course— We anchor all of history according to hockey. But you had the Communist Party's monopoly on Eastern European power—it was over. 1991, December of that year, the Soviet Union was dissolved.Kevin: Yeah, and you were raised in a household, Dave, probably unlike most. Even though we were aware of the Cold War, your father was probably one of the most staunch anti-communist writers and commentators at the time. So I mean, how did that affect you when you saw the Soviet Union actually dissolving, even though they were trying to put up the appearance of strength?David: Yeah, you're right. Child of the Cold War, born to parents with an interest in current events, dialed into the US-Soviet military competition of the '70s and '80s. And when the Russian hockey team played in Lake Placid, lost to Team USA, it was more than a sporting event, more than an upset on the ice. It's been 46 years since our team won the gold medal on the ice, so it was particularly stirring for me.Kevin: The kid who shot the final goal on Sunday morning, that game started at six o'clock Mountain Time, and when he shot that final goal, and then they interviewed him right afterwards, it gave me the memory of the national pride we had back in 1980. He was not ashamed to be an American.David: Now, and in many circles in the US today, national pride has been replaced with self-loathing. And I'd suggest that sporting events have always been more than sporting events. In the Cortina games this year, I mean, we had 64 golds won by US athletes, a phenomenal showing. And I appreciate it. No apologies.Kevin: I was in high school in 1980, and I do remember I had the choice of going skiing or staying home and watching the game. So I did, I went skiing. But the game was everywhere, the radios were on. And I remember when the US won that game, just the shouts while everybody was in a lift line, I think I was at Vail, if I remember right. But where were you? I mean, you were just a kid.David: I got a text from our first hire the other day, right after the games finished.Kevin: Steve?David: Steve Van Erden. Nearly 50 years ago, as we transitioned from a business run single-handedly by my mother towards the metals brokerage we are today, doing more business in a month than we used to do in a decade, he lived with our family. He was like an older brother, he was like an uncle, and—Kevin: And he was the first person this company ever hired.David: Yeah. And in that text exchange, he was recalling the game we watched together. It was amazing then, and it was fun to recall it.When I recall the strained years of the oil embargoes that just preceded, the stress on the dollar market, the uncertainty tied to global military competition, and the rivalry on display, you could see it in every May Day parade. There's as many differences as similarities between the 1980s and the present.Kevin: But you have a constant, because think about what was happening to gold at that time, David.David: Yeah, I mean, so you've got global power rivalries, check. We've got that, that's similar. A strain on the dollar, check. That's like today. More acutely, today you've got pressure building in the US bond market. And you're right, then and now gold was a barometer for uncertainty, and it told of the shifts that were occurring on the world stage.So geopolitics featured prominently then and now, the US dollar had, throughout the 1970s, come under intense pressure, as budgetary strains mounted as inflation took hold. And so we lived through the potential demise of dollar dominance then, largely bailed out by the petrodollar system, which forced an increase in US dollar holdings throughout the global financial system.Kevin: Everybody had to have dollars to buy oil.David: For trade settlement, primarily for oil. So then followed the upswing in dollar strength from '80 to '85, roughly 50% from 1980 to 1985.Kevin: Almost too much, right? I mean, the administration didn't want to see that strong of a dollar.David: Right. So it required a coordinated effort, 1985, to devalue the dollar. And that was implemented following what is called the Plaza Accord. They met at the Plaza Hotel right on the edge of South Central Park in New York City. And against the yen had triggered a 50% decline, against the West German mark, a 45 to 50% decline. This is over a two-year period.Kevin: And that was a policy shift, right, to have a weaker dollar?David: Oh, yeah. And against a trade-weighted basket of currencies it was a 30 to 40% decline over the following two years. So it was the group of five, US, Japan, West Germany, France, the United Kingdom. And there is talk today of the US dollar being overvalued.Kevin: Okay. So we've talked about this before. We've talked about Scott Bessent, and some of the vocabulary of a weaker dollar being needed, maybe less of a reserve currency status, but back in 1980, Dave, we had taken from George Washington all the way to Jimmy Carter to get to a trillion. 1 trillion in debt. Can we do anything like what Volcker did with, what, almost 40 trillion in debt?David: Yeah. I think the biggest difference I see today from that time frame is in our debt markets. To address inflation, Volcker was willing and the markets were able to absorb a spike in interest rates that took fed funds briefly over 20%.Kevin: That was amazing. CDs were paying 20%.David: Yeah. So the quantity of debt we have today takes a policy shift of that magnitude off the table, and it's not warranted anyways. We're well below the CPI levels, consumer price index levels, of 13%, 14% we had then. More to the point, we can't raise rates significantly. And if the market forces up rates at the long end of the curve, even small shifts in interest rates are highly consequential today. Debt service costs already exceed 20% of tax revenue, so we can't take much more.Kevin: And gold is becoming the unnamed international currency again. That's what seems to be happening.David: Right. It's telling us a lot in recent years, the price of gold. Geopolitics is in the frame, and with a disruption in relationships, not just trade relationships, there's a signal there in the gold market. But over-indebtedness is also in the frame, and over-indebtedness is a key factor driving the durability of this gold cycle. I think that's one of the most critical takeaways.If you're looking back at where prices were—1980, gold hit a peak. Are we at a peak in gold today? I would say, again, over-indebtedness is a key factor driving the durability of this gold cycle. So we have almost a necessity to devalue the currency, to alleviate the strain of our over-indebtedness. And we have an administration who, from a policy perspective, are intent on rebuilding our industrial base.So whether it's on-shoring, reshoring, friend-shoring, however you want to view it, the increase in exports, there's an implicit call for a lower value in our currency. It's the only way we can go toe-to-toe. In our meeting earlier today, we were talking about the IMF comments that production costs and distribution of products globally dominated by the Chinese. The only way to compete with the Chinese is by devaluing your currency on a relative basis. So the most likely policy course remains a gradual erosion of our debt burden via inflation, real dollar weakening, and financial repression, which we've talked about previously.Kevin: So back in 1980, and actually all the way up till just recently, the US Treasury, going and buying Treasuries would be like buying gold. That's what people thought. Granted, we had inflation. But it is the stable trade. What you're saying right now, especially with what the IMF is saying, is that maybe the US Treasury is not going to be the stable trade going forward.David: Yeah. Whether it was viewed as the anti-fragile asset or a risk-free asset, the benchmark for risk-free returns— I read a Financial Times article, this is actually from the 23rd of February, titled, "The Haven Status of US Treasuries is Eroding." And I think it tells the story well. It notes that Trump-induced geopolitical fragmentation, erratic policy shocks—including a tariff policy designed to hurt America's friends more than its foes, a sustained assault on Federal Reserve independence, and neo-imperial threats to annex Greenland are but a few of the worries impacting the perception of the US Treasury market as a safe haven.Kevin: Let me ask you, though, because you're quoting the Financial Times, do you sense a bias in that article? They're using imperialism, they're using those types of terms. They're not wrong in the degradation of the Treasury, but is it all Trump's fault, or was this coming anyway?David: Yeah, I think that there's certainly a view from the Financial Times. We all have biases, and from their perspective there's a number of things that they find distasteful, whether it's the style of delivery, to use the word erratic. Well, that's actually pretty accurate. I mean, from one day to the next—Kevin: Last couple of months have been.David: And if you look at March, April of last year, is it going to be a 50% tariff, 150% tariff, a 10% tariff? And now we've got tariffs off the table because of the Supreme Court ruling last week.Kevin: And then the addition of the 10%.David: At 10, but it's going to be 15 if we get that approved.Kevin: There you go. Yeah.David: So there's a dimension of, we just don't know what's next. And I think that the clear message is, whereas you in past times could look at the Treasury market as a safe haven, that is beginning to shift.Kevin: Okay. And want to specify, too, we're talking about longer term Treasuries, right? Short-term Treasuries are still probably one of the safest plays that you're going to catch.David: They're almost a completely different asset class. The way they behave, the things that influence them, and how people even allocate them into a portfolio as a cash alternative or long bonds as a fixed income trade, very different in terms of the role that they play in a portfolio. So the article went on to say, "Donald Trump has come close to exploding one of the great myths of the investment world, namely that sovereign bonds are safe—risk-free assets."Kevin: And this is quoting the IMF.David: No, from the Financial Times.Kevin: From the Financial Times. Okay.David: "And his second coming has contributed significantly towards undermining the role of US Treasuries as the world's ultimate capital market hedge. Longstanding doubts about the continuing preeminence of the dollar as a reserve currency have intensified. Investors..." And I love this quote, "Investors have reshuffled the hierarchy of haven assets with the Swiss franc, Singaporean dollar, gold, and German bunds taking the lead in haven rankings." The conclusion is that capital flows, although there is still money coming into the US, capital flows are seeking US exceptionalism within the equity markets.Kevin: They like stocks, they just don't like the bonds.David: But more exposure, if you're talking about the debt markets within Europe, where basically the judgment is, look, they've already dealt with Brexit. They've already done well working through the Greek debt crisis. So investors globally like the US income statement—this is the way it was described in the article—but not our balance sheet; but not our balance sheet.So debt is suspect while US equities remain of interest. For how long, we can't be sure because clearly the interest in the idea of exceptionalism, particularly within tech, you're talking about the AI and tech narrative. And that's drawn many a moth to the bright light of structural change, this revolution in AI. But maybe it's moths to flame as a more accurate description. So the final note in that article is that "long bonds are at times more volatile than stocks"—to your point, the difference between short-term T-bills and long bonds. They say "de-dollarization will be a very protracted business. The lesson is simply that in capital markets, the concept of safety is strictly relative."Kevin: Well, and let me ask, when you're running the race of who's going to borrow from whom, it used to be the government's really dominated that. But right now we've sort of got this shadow banking going on. You've got private debt markets that you really don't know where the danger lies.David: If you see credit expansion in recent years, and certainly in the last six to 12 months, in a huge way it's been in the private markets. If you look at the loans extended, the growth in bank lending, as an example, very small relative to what's happened in the private markets, private credit markets.So within the credit market Olympics, if you will, private credit has pulled ahead. They've reigned as the unassailable, capturing greater and greater capital flows. And of course, that's been at the expense of commercial banks and their loan books. Private credit has infused capital into tech and AI. And they've done it in a way that's unbound by things that typically go with a loan arrangement—recurring cash flows, predictability of repayment—the normal baselines for bank lending. Private credit has to some degree been a derivation of an equity play on US tech exceptionalism.Kevin: Okay. But there's an assumption of liquidity there, and the ability to actually get to money. And this thing with Blue Owl just recently shows that maybe this narrative is fading and the liquidity is fading with it.David: I went to a Jim Grant Conference in New York back in—Kevin: October, I think.David: Well, this was 2022.Kevin: Oh, okay.David: And there was a gentleman speaking, I don't even remember who it was. But he basically said the best days of private credit are already behind us.Kevin: Wow. And that was four years ago.David: So, early in his call, but it does take time for credit market dynamics to shift. And at that point there was still momentum in play. But I took a copy of that article, with permission from Grant, and passed it on to the investment advisory board of the local college where I'm one of the members, and just said, "Folks, this is an interesting insight. You're wanting to build out more and more, chasing Yale, chasing some of the larger university pensions and endowment funds. You want a larger allocation to alternatives, specifically allocations to private equity and private credit. Just for your consideration, if he's right and the best days are behind us, you're making a judgment on future vintages on the performance of past vintages. And perhaps that's not the way that we should be looking at this asset class."Now in recent weeks, you've got the AI narrative shifting, and with it the value of the trades all around it. Blue Owl captures the headlines last week. They suspended payments to investors indefinitely.Kevin: Yeah.David: Indefinitely.Kevin: You can't have your money. We don't have it.David: And that's in response to redemption requests going through the roof. And what it reveals is a liquidity mismatch. The underlying assets, the loans, are not really liquid, and the cash they have on hand is not sufficient to meet the wave of redemption requests.Kevin: I love how you said it's a liquidity mismatch. That's an interesting way of saying, "You cannot get your money back out." That's what you're saying.David: Yeah. Well, and it also speaks to the frailty of the structure. You can't have certain products within an ETF because of the implied liquidity of the structure. You go to sell, and click the mouse, and it's gone, except that the underlying assets might not have a two-way market.And so the liquidity mismatch is the implied liquidity, what you assume is liquid, when actually it's really not. And the whole notion of private credit is that you've bought yourself extra time, and you're getting paid what's called an illiquidity premium. You should be making more money on it because your money's going to be tied up for three, four, or five years, and you can only have part of your money back on a quarterly basis requested in advance.Kevin: But now it's indefinite.David: Yes.Kevin: Now it's indefinite.David: So Blue Owl is—and again, this ties into AI in many ways. Blue Owl is in the process of walking away from a CoreWeave data center loan. CoreWeave builds all of their compute capacity with debt. And this is a problem. If Blue Owl is not going to provide the credit, they can't build the data center. So CoreWeave's under pressure as well. Other private equity companies are rushing to their client inboxes, sending messages of, "Don't worry, we're okay."Kevin: Doesn't this sound like 19— Oh, no, no, let's go back.David: 2008?Kevin: 2007.David: 2007?Kevin: Yeah, yeah.David: Yeah.Kevin: Where it's like, "Don't worry, everything's going to be fine," but it's not.David: Right. Well, the popular products of the time, 2008, 2009, and of course packaged in 2004, '05, '06, and '07 were mortgage-backed securities and repackaged loans, collateralized loan obligations—CLOs, CDOs—Kevin: And they were paying above market at the time.David: Well, of course.Kevin: Of course.David: There was an illiquidity premium. You got to choose the kind of risk that you wanted, and there was an implied liquidity in the product, which ended up not being the case when you got to 2008—late 2008.Kevin: But what you're saying is there's a connection to the AI narrative and this debt unraveling.David: Within private credit, yeah. So if you have memories of the mortgage-backed securities crisis that triggered the global financial crisis—that's 18 years ago now—the C-suite fire-stomping, it can actually be more of a cause for concern than calm. So the private equity guy is getting out and saying, "Hey, we're okay. Don't worry. We're okay."That actually may have an unintended effect, like, "Wait a minute, we weren't worried. But if you're worried enough to send me an email saying, I shouldn't be worried, maybe I should be worried, and I now am."Kevin: "Why don't you just give me a little of my money now?"David: Right. "I'll just take a small amount."Kevin: Yeah.David: Yeah. The interconnectedness of private equity, private credit, tech into AI is enough of a daisy chain to matter. And while most buyout firms have limited exposure to real estate, there is this added layer of exposure within the credit markets that has negatively impacted commercial real estate.And so the same private equity groups that have—private credit, I should say—significant loans into tech and AI also have some exposures in commercial real estate. Not all of them. On average, probably 5% exposure to commercial real estate. But then when you go to a Blackstone, a Brookfield, a KKR, an Apollo, they've got real estate assets in the range of 20 to 40% of firm-wide assets under management.So, commercial real estate, is it the canary in the coal mine? You've got a listing of Chicago offices that changed hands in the last quarter, selling well under previous purchase prices. I'm looking at the list now. 74% lower than the previous purchase price, 87% lower, 82.5% lower, 85% lower, 68% lower, 94% lower.Kevin: So it's either a bargain or it's a free-fall.David: Yeah. I mean, we're talking about real money here, from 165 million at last purchase to the hammer price at 22. 51 million to four.Kevin: Wow.David: 377 to 85, 302 million to 45.I mean, they're great deals unless vacancy rates go even lower, which again ties back into AI.Kevin: Yeah. See, that's thing you've called it a daisy chain. Who would've thought that AI might be connected to commercial real estate collapse?David: Notably, Anthropic CEO Dario Amodei predicts 50% of entry-level white-collar jobs will be impacted within the next five years.Kevin: So possibly replaced.David: Well "Impacted" is one way of saying it. Probably a 14 to 30% disruption or complete displacement in total. Talk about deflationary.Kevin: Wow.David: So particularly for commercial real estate, maybe these are sensational prices at rock bottom levels, and maybe the revolutionary nature of AI is jobs-negative at a scale we care not to imagine, right?So leaving some commercial real estate, I mean, can you imagine having commercial real estate with a negative value when you factor in the taxes and insurance that you have to pay? Go to a place like New York City. Oh, you think real estate taxes are going down? Not anytime soon.So your cost to carry, it doesn't matter what you paid. The question is how much do you have to continue to pay in hopes that you can actually improve your vacancy rate, or your occupancy rates?Kevin: It's like during the Great Depression, a person could own their land but not be able to pay their taxes on the land. Just the cost of owning it costs a lot of people a lot of money.But we've talked before, 2007. 2007, Bear Stearns came out and tried to sell bad debt. It was not that big a deal. It was 400 million, but that was the canary in the coal mine. So my question is, is this the canary in the coal mine? I mean, Mohamed El-Erian?David: Mohamed El-Erian ran PIMCO following Bill Gross's tenure there, and with reference to Blue Owl, he posted on X, "Is this a canary in the coal mine moment?"Kevin: Yeah. I wonder.David: Speculating, "does this further erode investor confidence in credit vehicles, judging by the share performance of the large private equity firms?" So we go back to the Ares, the KKR, the Blue Owls, they're down 16 to 20% year to date.Kevin: Somebody knows something.David: And they're off 40 to 50% from peak levels last year. So you have to wonder, alongside El-Erian, Blue Owl is now down 60% from its peak, and it's still sports a price earnings ratio of 101. Texas Pacific Group, TPG, they're off 40%—the equity is—to trade at a price earnings multiple of 94. Right? So the share price is down 40 to 60% for these firms, and yet they're still priced like—Kevin: I'm thinking maybe these aren't canaries, these are ostriches in the coal mine.David: Ponder that. Major price corrections, and they're still asking investors to pay upfront for nearly a century of yet earned income. That's a little rich.Kevin: Yeah.David: And they were even richer. So again, KKR, Ares, Blackstone, Apollo, judging by their share prices, you could say the golden age of private equity is indeed over. And to get to a more modest P/E, earnings need to quadruple—Kevin: Wow.David: —or share prices fall by an additional 50 to 70%.Kevin: Wow.David: Also worth noting that the folks who've populated this space for a long time, again, in the world of institutional money management or pensions, endowments, these are the alts, the alternative investments. So you've got your traditionals, which are, again, publicly traded stocks, bonds, then your alternatives give you a range of things. Very rarely does gold hit that list of alternatives.Kevin: Right.David: But Princeton and Harvard are both significantly shrinking their exposure to private equity and private credit. This is an allocation shift that hasn't occurred at this scale in decades.Kevin: Well, and again, going back to 2007, 2008, there were some who were too big to fail and were bailed out. There were some who were not. But private credit and private equity is not something that's probably going to be bailed out by the public—I don't think, do you? I mean, could you see a Blue owl or a KKR being bailed out by you and me, the taxpayer?David: Anything's possible. Friends are friends. It's not what you know, it's who you know.Kevin: Yeah. Trillions are trillions.David: If you went to the right school, maybe you've got the right Rolodex. I don't know. When you review Doug Noland's periphery to core framework, you've got issues that emerge in the credit markets in higher risk areas, kind of at the periphery of the markets, and then move towards the lower risk center as risk intensifies, as liquidity dynamics shift.Kevin: As it moves toward the core.David: Yeah. And those liquidity dynamics, they flag emergent issues. Price volatility, discounting of assets, that is a flag of emergent issues. Gating, like the Blue Owl fund, flags an emergent issue. Again, at the periphery, how much does it move to the core? Private credit is really just non-publicly traded junk debt. That really is at the periphery of the credit markets. It's only accessible if you wear the right kind of bow tie or you wear bespoke shoes and a nice tailored suit. I mean, it's not accessible to everywhere. It's institutional access, primarily.Kevin: Right.David: And they've only just recently opened up a few funds that an individual investor can buy in the form of an ETF. Or maybe you want exposure to all of those assets in a direct investment in Blackstone's publicly traded stock. Wouldn't have treated you well over the last six months, but nevertheless—Kevin: Right.David: —that's removed to some degree. Private credit is just non-publicly traded junk debt. So, no surprise that companies that have borrowed at rates north of 10%—I mean, we're talking 10, 12, 14, 16, 18%—Kevin: Isn't there always a reason, when somebody says, "Oh, I'm getting double the interest that I could in your bank account or—"David: Yeah, it's an indication of risk.Kevin: Always. You never get away with it, long.David: As the creditor, you look and you say, and I see this with many novice investors, they're like, look, I can get 12% over here. Yeah, you could also find 14 and 16% paper, do you understand the risks that you're taking?Kevin: Right.David: Because you are, in essence, being compensated for a higher likelihood of default, and you have to factor that in. It's not a free lunch.Kevin: Right.David: This isn't that extra free money—Kevin: And that's the—David: —above the risk-free rate.Kevin: That's the market. The market rate, if you're getting double, you're taking double the risk at least, yeah.David: But those companies that are borrowing at 10, 12, 14%, they're the first to be impacted by any slowing in sales or revenue. So again, that periphery to core framework, if you're at the edge, you're paying those high rates, you are the first to be impacted by anything that changes within the economy. How far it moves to the core remains to be seen, but I think that whenever you're considering the periphery to core risk migration, it's also worth keeping in mind John Exter's inverted liquidity pyramid. He was at the Federal Reserve Bank of New York for a number of years. My dad knew him. And what he depicts in this inverted pyramid is basically that in good times money flows up the pyramid. And again, the base is at the top going down to-Kevin: It's inverted, yeah.David: It's inverted .Kevin: Yeah.David: Derivatives, unfunded government liabilities. Move down a notch: non-monetary commodities, private businesses, real estate. Then you move to corporate and municipal bonds, securities, listed stocks. Then you move to government bonds and Treasury bills. Then you move to paper money, and then at the very—Kevin: And then you move to gold.David: Then you move to gold. So in good times, money flows up the pyramid towards high-risk assets, in bad times, money flows down the pyramid towards assets that don't have liabilities attached to them. They're not encumbered. I think these two things marry very well, the periphery to core migration and the inverted liquidity pyramid. Markets under pressure do precisely what the Financial Times article I previously mentioned, described. Investors are reshuffling the hierarchy of haven assets, and they're going for the gold. Sorry, the Olympics are back and—Kevin: I was going to say, just like the Women's Canadian team.David: No, they went for the silver.Kevin: Yeah, yeah. But just like the women's US team went for the gold—David: Yeah.Kevin: And the men's team went for the gold, I guess the message, like you said, is go for the gold.David: Reshuffling the hierarchy of haven assets and going for gold.

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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 of course 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.

• Hedge Funds, Highly Leveraged, Own More Treasuries Than China or Japan
• AI Narrative Dangerously Fading
• The Cayman Islands Are Our Number One Creditor!

"It just suggests to me that we have troubled waters ahead, and the last up-cycle, the last up-cycle in precious metals, 2025, driven by central banks and then some late comers to the market, and frankly, seeking gains, chasing profits. I fear the next metals move will be less driven by greed, which we just finished, and more about fear. The most powerful precious metals moves are driven that way." —David McAlvany

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Kevin: Welcome to the McAlvany Weekly Commentary. I'm Kevin Orrick, along with David McAlvany.David, sometimes you have to replace what you are spending. I was thinking about this. I had a hot tub that every time you filled it it would lose about two inches a day, and that means you have a leak. And I think if you take our nation and how much we're spending in debt, it's a little bit like that as well. I don't think we're bringing in enough water to keep that hot tub full, do you?David: No. In fact, for every $1 the US collects in taxes and tariffs, it'll spend a 1.33 this year. And when you look at the US markets, it's not a loan. Sovereign debt crisis is not a theoretical crisis. It's an unfolding reality. Whether it comes to a head in the US or Japan first is the question I'm asking.The numbers I want to share today are an approximate range, just like US debt to GDP. It's either 102, 102%, or 125% depending on whether you've got a gross or net calculation. The gross numbers most recently were calculated by the IMF at 125. So there's a variety of measures that exist.Similarly, interest payments are in the range from 970 billion to 1.22 trillion. Again, a range according to the Peterson Institute. And at year-end, we were averaging 92 billion a month in interest payments, not an insignificant sum, gets us over the trillion mark. The Wall Street Journal put it this way, "the US is projected to run a deficit of $1.85 trillion, or 5.8% of GDP, in the year that ends September 30th, and then stay at 5.7% in fiscal 2027." So that earlier quote was from the Wall Street Journal. For every $1 the US collects in taxes and tariffs, it will spend a $1.33 this year. It's not if, it's when we have a debt crisis.Kevin: Okay. So I think we need to go back and actually look at who is loaning us this money. So if it's a 1.33 for every dollar, and that's including tariffs. Years ago we had that symbiotic relationship. The Chinese would just loan us everything that we had in trade deficit to them. They had a surplus. But the Chinese are backing away big time, and the Japanese, I think, also. There's a reason why the Japanese money may repatriate and stop sending us money.David: As you have yields on Japanese government bonds, 10-year maturity. They've gone from less than 1% as recently as November of 2024 to 2.29%. Maybe that's not a big deal if you don't have very much debt, not a big increase, but more than doubling on a very large base of debt is a factor. Your longer term Japanese government bonds, the 30-years, are currently at 3.39, and they haven't been this high since I was in grade school. So, fortunate there is a growth in GDP in Japan. So Japanese debt to GDP has come down from 250% to only 236%. And estimates are that we get into the 220s next year.So fiscal stimulus is, under the new administration, to be focused on corporate sectors, recapturing global market share, and as recently elected Prime Minister Sanae Takaichi has announced, I think one can reasonably assume an improvement in that government-stimulated GDP. The fly in the ointment would be if rates increase in Japan in line with market projections. There are some who are estimating that their rates move as high as 4.6%. So it becomes an issue when you've got as much as they do.Kevin: So what you're saying is, as Japanese rates increase— I mean historically, especially the last few decades, Japanese rates have been so low that it's created a carry trade where it helps the United States actually. But what you're saying is, Japan may be paying a reasonable, higher interest rate that would pull money back away from us and over to Japan. Is that what you're saying?David: Yeah, exactly. And the interest component, which we've often talked about in the US, this is a reality in Japan as well. Interest paid on their national debt as a percentage of GDP has already gone from 1.2 to 4.48. And you're talking about nearly 10% of tax revenue in Japan going to interest payments, held in check largely by the high percentage holdings of the Bank of Japan of those JGBs. 46% of public debt is held by the Bank of Japan. So even with higher rates, it's not an endgame scenario because it's not like you have foreign creditors who are upset, you kind of owe it to yourself.So in the US, of course, it's a different matter—interest as a percentage of revenue as well. Yeah, so coming back to Japan, 10% of revenue, that's well below the level of the US where 23% of tax receipts went to interest in 2025. 1.2 trillion paid. I had originally estimated 5.6% in tax receipts. It came in at 5.2. And so interest as a percentage of GDP in the US, still 5% of GDP, but over 23, over 22-23% of total tax receipts. Clearly it's more dramatic as a percent of revenue.Kevin: Well, and I can't help think, Dave, I remember when I memorized a few lines of Hamlet, the line, "The borrower is servant to the lender." I would think that Japan may play a key role in the direction of our own bond market.David: Yeah, I think you're right. Japan is likely to hold one of the important keys to the direction of the US bond market. We have already lost China as a primary financer of our debt. Treasury holdings in China peaked between 2011 and 2013, and have steadily fallen by nearly 50% since that time. So they're just not interested. They're out.Last week, Bloomberg noted the Chinese government urging state-run commercial banks to limit their holdings of US Treasuries. Japan on the other hand has remained a source of Treasury financing. But with upward pressure on Japanese yields and an improving outlook for the Japanese yen, repatriation of capital and curtailment of yen carry trade dynamics is likely to further pressure US Treasury demand, which, again, is kind of a knock-on effect—pressure yields higher, not exactly what the current administration wants.Kevin: Now I think about our conversations with people who are planning on retiring, David. One of the first questions that I ask is, what are your sources of income? So what you're saying the sources of income for the United States, as far as our debt, China, which you said they've reduced their purchases of Treasuries by 50%. Japan, who else are we looking at?David: Yeah, Japan's not the number one creditor of the US. The Cayman Islands are.Kevin: The Cayman Islands? Yeah. Wow.David: And how is that possible, US? It's the domicile of a huge number of hedge funds. So implicit to the Treasury financing its debt is the leveraged speculative community using vast quantities of US Treasuries to speculate in the basis trade, which Morgan Stanley notes the scale of the basis trade at $1.5 trillion in January.So Cayman Islands holds the most Treasuries. They are the largest creditor of the United States. In essence, again, it's hedge funds who have rented, if you will, rented Treasuries to turn around and use as collateral. So these hedge funds use Treasuries as collateral against repo debt. The discrepancy there is between the cash price of Treasuries and the Treasury futures price, which is sufficient in basis points for hedge funds to leverage up and collect the differential, and arbitrage, if you will.Kevin: Well, and see, that's the thing that scares me. I mean, those basis points would not provide enough profit for those hedge funds if they just did it straight away, but they leverage those basis differences. And so actually they sort of need a spread, don't they?David: Yeah. So you pledge the cash Treasuries as collateral in return for repo market borrowing, and then the juice comes from these trades being leveraged 15 to one, up to actually 100 to one. So they're taking no duration risk. Hedge funds just want to see volatility. They want to see a narrowing or widening of the spread between cash, Treasuries, and the futures market price. And that's where they're making their money on a highly, highly leveraged basis.Kevin: So when COVID broke out and when everybody started to realize that there was going to be a shutdown, we saw major volatility in those very markets.David: Yes, in November of 2019, we had disruptions in the repo market. March of 2020 again, and then if you fast-forward to Silicon National Bank, yet another incident where the repo markets came under strain, moving in an unanticipated direction, which is a problem for the levered speculator.Kevin: So what you're saying is, it's not if, but when this thing comes apart. This is supposed to be the safest investment in the world, US Treasuries, but they're playing the volatility between the spreads.David: Well, I mean, I guess the basis trade could hold together as long as interest rates remain predictable. But I think you're right. It's when not if we see an unwind in the basis trade, bringing cash Treasuries to market in quantity that would overwhelm the capacity of primary dealers responsible for selling new issued Treasury obligations. It's basically down to supply and demand.As long as you have those things in balance, then the Treasury market behaves in a normal fashion. But you've got leveraged speculators who may, not as a choice of their own, may have to cough up a lot of these cash Treasuries, and that's when your primary dealers are flooded with oversupply, lack of demand. And that's where you begin to see interest rates do some things that are, well, shall we say unpleasant.Kevin: And so this goes back to what are your sources of income? If China has backed away and they're 50% down on loaning us money, and Japan, you're talking about the possibility of higher rates and repatriation of those debt dollars or yen. Then Cayman Islands, the holder of last resort—I guess maybe the Federal Reserve would be the holder of last resort—but the Cayman Islands being in a speculative frenzy as long as interest rates are predictable, like you said. It seems to me like this is very, very thin ice.David: It's thin ice. You had, last June, the Bank of International Settlements highlighting a growing concern, not with the basis trade, but yet another leveraged trade in Treasuries, where again your leveraged speculative community has found ways to borrow and invest—it's their own version of a carry trade—and do this on a highly leveraged basis and pick up just a small amount. But that small amount of carry ends up being very impressive in terms of returns on a leveraged basis.So the one that the BIS was highlighting in June was the swap spread trade, which tallies to a mere 631 billion, or it did at the time. So this trade, it's also a relative value trade, but instead of using the repo markets, it uses interest rate swaps versus the current Treasury yields. And this trade comes unglued if or when you have an unexpected rise in yields. So Treasury yields need to fall relative to swaps for the trade to work. And if, like in April of last year, yields spike, then the swap spread trade comes under pressure as well.So you get different versions of leveraged speculation in the Treasury market, with the largest pool of Treasuries held by a single group. I wouldn't say single entity, but they're all doing the same thing [unclear]. It works until it doesn't, and we got to see it in real time. We had a pre-shock last April, yields spike, swap spread trade comes under pressure, and the hedge fund community starts scrambling for liquidity.Kevin: And again, this is all about leverage. We're not talking about making the risk that we're talking about twofold or threefold or fourfold. How much leverage do these guys use?David: Yeah, it's fair to say that leverage enhances your returns until it kills them, and when it kills them, it does so very quickly. So you combine the swap trade with the basis trade, and you're over $2 trillion, and that's what you can account for. Then you've got, depending on the leverage, pick your number—somewhere between 50 and a hundred.That's a lot of cash, but just the $2 trillion in leveraged bets within the US Treasury market is equal to 7.5% of all of debt held by the public. It was Jim Grant who commented that the world's safest and most liquid market depends on the stability of hedge funds levered, say 50 to one, is not exactly what Alexander Hamilton had in mind. It's an abnormality of the second order, the first being peacetime deficits and the ensuing deluge of issuance.Kevin: Yeah. And so part of the reason you have these spreads, too, Dave, is because we have an oversupply problem. The markets, even debt markets are driven by supply and demand. And the United States has a lot of supply of Treasuries and not that much demand.David: It's fairly in balance today. That's the question, does it remain in balance? Are we able to maintain the old audiences? We've lost the Chinese, the real question now, the reason we bring up Japan in this context of leveraged Treasury holdings, is because we need Japanese capital to stay where it is, and we've often discussed the oversupply problem emerging in US Treasuries because there's a lot of them out there. And yet we're offering to the market between one and a half and two trillion each year, and expect the market to take that in stride and absorb it.So again, this is in part due to our deficits increasing, and it's happening at a time of global de-dollarization. So we're continuing to push out more IOUs into an arguably saturated market. Chinese government holdings illustrate this, as does the Chinese government mandating a decrease in bank sector holdings of Treasuries. So the outstanding US government IOUs are there at real significant scale, and increased demand is the only way to keep things in balance and continue to soak up the increasing supplies.Yet the opposite is being set up, and we have this straight from the horse's mouth. Congressional budget office is looking at debt increasing to north of 52 trillion by 2035. So of course we're going to have to have a new audience, we're going to have to have even more appetite for Treasuries, and it's just not likely in the context of global de-dollarization, I frankly think the CDO's numbers, that's conservative. Figure 52 trillion and a conservative time frame, 2035—likely to happen faster than that.All you need is a recession and all of a sudden government financing needs go through the roof. So as issuance grows and appetite for US Treasuries grows cold the world over, we see the hedge fund linchpin as a very vulnerable part of our financing equation—one that large enough to drive an upward spike in long-term borrowing costs. And of course, there's dominoes that fall from there. Perhaps that is the key which fells the equity markets here in the US.Kevin: Okay, so you're talking about both. You're talking about the bond market and the equity market, and 99% of the brokers out there, Dave, that are managing people's portfolios, are still stuck in the 60/40 mode, 60% equities, 40% bonds, but what you're saying is that's a dead issue at this point. That's the wrong strategy.David: I do this every week. I review prospective clients' portfolios, look at where things are currently held, how they're allocated. And this last week I was treated to a portfolio constructed by a CFA, CPA, knows his numbers well, but there was really no surprise. There was a classic 60/40 portfolio. Only the 40% in bonds was high-yield investment-grade corporates, but surprisingly higher risk given the junk status of some of the debt.And of course it's just, "Look, let's maximize income as much as we can, and you're going to get a few more basis points in yield from the junk category." Look, April of last year was a pre-shot. The 60/40 portfolio has been dead for some time. And these elements of hedge fund dependence on bond market stability, they're like the final nail in the coffin. We've got the hammer raised and at the ready.Kevin: Yeah, I wonder, Dave, okay, so we're going back and we're saying, "All right, what are your sources of income?" We talked about China. It's down half of what it used to be. Japan, and that probably is going to diminish. You talked about the Cayman Islands, the hedge funds, which are playing a pretty fast strategy with high leverage. What about Kevin Warsh, though, reducing? Yeah, I mentioned the Fed Reserve might be the buyer of last resort, but what Kevin is basically saying is he wants to reduce, he wants to shrink the Federal Reserve balance sheet. It's not going to work.David: That's a nice idea. In theory, this is what he's been saying for a number of years. In practice there's some practical limitations, and that's what we're talking about today. So you bring the worst notion of shrinking the Federal Reserve balance sheet and returning more supply of IOUs to the market. Is it reasonable? Yes, it's reasonable. Is it realistic? No. In fact, the setup is quite the opposite. There is a realistic scenario where the Federal Reserve is the only entity with the capacity to absorb trillions in abandoned US dollar assets, debt instruments.Would they end up as the backstop for the hedge fund industry? Would they practice the most egregious form of moral hazard in all of history, where it's not just supporting commercial banks who might've gotten frisky with some loans, but you're talking about rank speculation, the highest leverage imaginable. And if the credit system's survival depended on it, of course they would backstop the hedge fund community. So while Warsh may wish to shrink the balance sheet at the Fed during his tenure, it's far more likely to see the balance sheet increased by 50 to 100%.Kevin: So you've talked about the de-dollarization, and our currency at this point is not nearly as treasured as it was in the past, to use a pun, but the Japanese yen, you were talking about Japan probably seeing higher rates. What will that do to the currency?David: Yeah, well, if we go back to the Japanese, our friend Russell Napier in his most recent issue of The Solid Ground, suggests that the yen is today an attractive asset, it's an attractive place to keep liquidity. Of course, he's been bullish on gold for some time, but last week's 3% gain in the currency, if he's right, is the beginning of a new trend to watch.Kevin: Is that also because the Japanese have no problem intervening on the currency?David: Yeah, I think a part of it is that we've seen those interventions by the Bank of Japan that occurred on a routine basis around the 160 level versus the US dollar, but Takaichi's corporate stimulus plan comes at an opportune time, driving GDP growth in Japan via fiscal stimulus. Number one, that relieves some of the pressure in terms of debt to GDP statistics if they can get GDP to grow. But if you also have rates increasing at the same time, it beckons home some part of the $5 trillion in overseas liquid capital owned by the Japanese public and private sector, including Japanese corporations. So repatriated capital will be further wind in the sail, strengthening the yen. To what degree? How much? We don't know.Kevin: Well, and of course we're talking about strengthening the yen relative to the dollar.David: Yeah, and there's ranges, I think 120 to 140 is realistic. The IMF's measure of purchasing power parity, their calculation, values the yen at 93.67 to the dollar, and Russell in The Solid Ground qualifies that statistic, saying that currencies only trade at a purchasing power parity once in 15 years. So, long shot that we see it go that low, but the trade to purchasing power parity does happen on rare occasions.Kevin: I have a question, because as we talk to clients, we can go back, I remember decades of talking about the petrodollar and how we protected that militarily, and we were very careful until 2022. And then we weaponized the dollar when Russia invaded Ukraine. That seems to be a mistake, doesn't it?David: Well, for sure, and I think this is one of the things that you see reflected in the gold price today. The current softness notwithstanding, you're seeing a global shift in monetary dynamics, and it is very important to know what the undercurrents are. Yeah, we wonder if in the process of weaponizing the dollar, we haven't in effect pulled the pin and then forgot to toss the grenade. We were intending to gain an international relations edge and pressure countries into a DC or US MAGA-oriented agenda. We may have motivated one of the great mass exoduses from a currency, again only to discover that we're dependent on—and this is the irony—dependent on the leveraged speculative community with accounts in the Caymans for maintaining what the world has in past decades referred to as the risk-free rate. The US Treasury was the benchmark for a risk-free return, and of course it's not really seen that way anymore.Kevin: We're not the only ones competing for money to borrow, right? We've got Europe. We haven't even brought up Europe, but they're very dependent on demand for their own bonds.David: Yeah. And so that brings into focus not only the dollar at risk, but also euro stability. We may be the greatest debt abuser in recent times, but if you go back to Japan, of course their debt to GDP reaching 250% a few years ago, they have been, if you want to look at that from a more "historical perspective", the great abuser of debt.It's just fascinating that now the interest of its own people, Japanese people, through a combination of GDP growth and currency stabilization, may be the factor which unhinges both the dollar and the euro—I think the dollar to a greater degree. But if the Japanese repatriate, it's not only the US Treasury market at risk, it's the European debt markets, particularly the French, which is something that Napier notes in his piece, because there's a lot of French debt which is owned by Japanese capital.So if the Chinese can mandate a reduction in Treasury holdings at its banks, what about favoring repatriated capital by Japanese insurers or by the Japanese government pension investment fund? They're only $1.88 trillion fund, third largest in the world, 42.5% of their holdings are overseas. Well, what if they're special terms? What if they don't even need special terms? If it's just down to, again, GDP growth and an improving currency situation, why wouldn't you bring that money home?Kevin: Sometimes I wonder too, Dave. It's fascinating, you talk about the Treasury's war and how we have been able to use the strength of the hegemony of the US dollar as a weapon, and we've restrained ourselves actually for the most part until recently when we really weaponized the dollar by telling Russia they couldn't sell their oil in dollars. But the question that I have, then, the negative case for the dollar. We're talking about a major weapon that helped avoid kinetic warfare—I mean actual military action. And I'm wondering if we should be looking at the dollar and saying maybe the only thing we're looking at is what's the value of the dollar relative to other currencies. But what does that do for policies—international policymaking—and how we go forward?David: I think in the easiest gloss, you could say, we built a negative case for the dollar around measuring money supply growth or rates of inflation, things like that. And today, what you're pointing to is something that's a little bit more complex. We're measuring the impact of policies and political preferences that have, implicit to them, unintended consequences.It is in witnessing a reappraisal of risk, and this is again back to our debt markets and sustainability in terms of GDP growth and a strong economy relative to payments on national debt, which again, as a percentage of GDP are not particularly concerning, but as a percentage of total revenue, squeezing out things that we have to pay for. We've got the three largest line items in the national budget—Social security, Medicare, and now interest on the national debt. Well, there's more to running a government than these long-term liabilities, and then the current cash flow required to make payments on debt.So I think our debt markets are incredibly vulnerable. Too much supply, not enough demand. The repricing of rates to reflect a gap in demand is likely what ushers in a reappraisal of asset classes in general, because I think there's certainly a knock-on effect to real estate, but also a reappraisal of valuation metrics in US equities. And it forces the math—this is math we discussed months ago—where foreign investment in US markets has continued through the end of 2025, even into early 2026, into the unassailable trades, the things that were just guaranteed to make money: AI and the tech trades. So foreign investment in US markets, that's where it has flowed. And so just as we could imagine a world where there's an exit from Treasuries, well, it's not that hard to imagine a world where the unassailable trade moves in reverse.Kevin: And I'm wondering if that's not starting to happen, Dave, the momentum that we had in the Mag-7 stocks, the AI and the tech trades, what happens when that flow reverses?David: Well reverse the flows, money seeks greener pastures because you not only have to make money on the underlying investment, but you can't lose money in the currency exchange. So if you have a combination of a weak dollar and a weak equity market, now you've got a two jab-type scenario. The attempt to sidestep both market and currency exchange losses, that's a scenario where the trickles of selling become a deluge. No one really has to consider valuation metrics when momentum is running to the upside. That's kind of a convenient truth that's set aside. Those metrics remain valuable to the Cassandras and the permabears.But ultimately they become important again to everyone else when valuations mean revert, which they always do. And I'm traveling, which is why we're not doing the video today. I'm reading Jeremy Grantham's latest book, co-authored by one of our prior commentary guests, Edward Chancellor. GMO is the institutional money management firm that Jeremy Grantham has run, going back to, I think it's the sixties. And GMO from inception to present has focused on mean reversion as a fact, market inefficiency as a fact. And from GMO's recent report, a record proportion of the US stock market trades at over 10 times sales. Kevin, that's a problem. That's something that's pretty easy to say, okay, if you've never been this high, maybe we've got mean reversion around the corner.They also note that the US market capital/GDP ratio, the so-called Buffett indicator, is at all-time highs. And as you know, Kevin, you and I have talked about this repeatedly, all throughout 2025 as it was reaching new heights and then setting new highs every month, this ultimately is unsustainable. It's one of the reasons why Buffett prefers to sit in cash close to $400 billion. The S&P 500, on a cyclically adjusted basis, trading at 40.3. What shifts these metrics? Frankly, it doesn't matter. Markets can follow their own way, but there is growing negativity filling the void that the dominant AI narrative and that idea of unbound growth in tech had previously filled. That growing negativity is showing up. We've seen in the last week or two a growing pressure on tech, software, on anything AI related.Kevin: Yeah, and so the cheerleaders that have just been saying that AI is just to the moon forever, at this point, they're starting to sound a little bit noisy.David: Yeah, it was only a few weeks ago that if AI was attached to your business plan, you could do no wrong and you didn't need to have profits. Now, the headlines are very different. These are headlines I will quote. "Wall Street's new trade is dumping stocks in AI's crosshairs." Another reads, "Stocks have few pockets of calm amid AI worries." Yet another, "Tech rout intensifies as angst over AI deepens," "US financial shares extend sell-off on continued AI concerns." "Wealth manager stocks sink as investors flee AI's next casualty." And on and on. So sentiment shifts with narrative. Then liquidity dynamics shift. And that's when you have new price realities emerge.Kevin: I have a question for you then. If the listener is saying, "All right, well, I'm going to step out of the volatility right now. I'm going to go into US Treasuries." We've talked about the danger in the Treasuries market, but a lot of that has to do with length of maturity. If you go shorter term, that's still a safe bet, isn't it?David: Yeah. I think if you want to sidestep volatility, you can move to Treasuries. You just want to stay in very short term. Treasury bills, avoid the bonds, avoid the notes. So only the shortest of maturities.I think better yet is the macro advice which was proffered by Mike Wilson at Morgan Stanley. Cut your bond position in half in favor of a better anti-fragile asset, gold. When he's suggesting this, back in October of last year, he's not saying that this is the trade for the next 90 days. He's not saying this is the trade to end 2025 and to begin 2026. This is a shift in thinking which is set for many years to come. Many years to come.And I think, again, that the wisdom that Wilson is expressing is that there are fundamental shifts in the debt markets, in the global debt markets, and certainly in the US Treasury market. And that has an impact across not only the credit spectrum but the duration spectrum. And you are better positioned, take half of what you would've had in fixed income and have it in gold.I don't think he's thinking, "but," "if," "here's the qualifier, if gold goes up a little bit more, then you should reconsider and not own any gold at all." No, I think this is a macro call which has legs to it, and as many years yet in the making as we are just at the front edge of seeing a change in the bond markets.The things that we've been talking about today, Kevin, this is prospective. This is yet to occur. We see where the fragility lies, that the Cayman Islands and leveraged speculators are the largest holder of Treasury paper in the world is more than a bit concerning, but we have yet to see any real ramifications from that. That is the context. When we see those ramifications, that is the context in which you hold gold and perhaps you say, "And you can pry it from my cold dead hand."Kevin: Well, and like you said, we're on the front edge of this. And Dave, as you know, I mean we lived in a town here in Durango now for 33 years since we moved down from Denver, where a train runs through town, an old narrow gauge railway train runs through town three to six times a day. And we hear the whistle. Anybody in Durango knows when you hear the whistle, get off the track, and what you're saying, it's not too late.David: No, it's not too late. I go back to the portfolio. I looked at this last week, again with investment grade and high yield bonds, but when I look at the spreads on investment grade and high yield versus Treasuries, they're about as compressed as they've been in multiple decades. Really, the appetite for those bonds is still strong. And so I think it's not too late. It's not too late. You can still avoid the spread expansion where all of a sudden those things trade at much lower prices and much higher yields. You can still avoid the increase in yields, which is likely the defining factor to markets in the years ahead.And again, this is really with a focus on duration and credit quality. We're already seeing the stress in the leveraged loan market. We're already seeing the stress in the private credit markets. And I think what we've talked about here just a moment ago in terms of AI and tech, the leaders, the generals which have defined the bullish sentiment in 2025, they're being taken out. The troops do scatter thereafter. So I think volatility like April of 2025 around liberation day, it's just beginning to return.Kevin: So you're not saying higher interest rates right away because if that volatility affects the equities market, money's going to come out and go somewhere. Like you said, some of it's going to go to gold, some will go into short term Treasuries, but will some of that go into long-term Treasuries and possibly push rates down initially?David: That's a healthy caveat. I mean, if equity market volatility increases in the short term, could we see a global risk off dynamic which brings interest rates lower in the short run? Yeah. I mean, that's a 2008, 2009 dynamic. And I think the difference between then and now, at least in terms of pressure in the precious metals space is that you have a growing desire to dedollarize. And you've got a growing number of central banks that are trying to get away from paper assets to something that they can hold onto.In recent interviews and samplings of interest from high net worth individuals, investors, family offices, they want to be in an inert asset class. They want to be in something that represents true safety. The demand cycle for the metals is, I think, very different than '08, '09. Even past the 2008, 2009 period, we did see resurgence in interest as people started to question the solvency of the institutions that they had capital with, whether you're in stocks or bonds or annuities or mutual funds or exchange traded funds.However you've allocated your portfolio, first is liquidity drying up and there being a significant price correction in those assets. Then comes the realization that you've got institutions which are under real strain, and in those moments you have a scramble for things that are financial assets, but they are outside of the financial system.This Treasury market dynamic where pressure in rates to the upside, a real mismatch between supply and demand, forced liquidations from leveraged Treasury holdings in the Caymans. This kind of a setup is like what we saw in March, April, May, June, July of 2009, where all of a sudden individuals and institutions are scrambling to own gold because the institutions themselves don't trust each other. When you're worried about counterparty risk, there is one place to go. One place to go.So I appreciate that momentum runs both ways, and the more I think about our debt markets— Certainly we can see further weakness in metals, but the more I think about our debt markets, the more bullish I am, which again is not to say that consolidation can't or won't retest breakout levels. From a technical perspective, that would be the best thing to happen to the precious metals, setting the stage for a longer term move to much higher levels. I see the counterparty risk growing and the only backstop for the hedge fund community, the largest holder of Treasuries, being the Federal Reserve.So we've kind of seen this play before, whether it's 2022 or when we've had to have significant interventions, March 2020, when the Fed reversed its course of tightening and went back to easing policies in the fourth quarter of 2019. Or you can roll the clock back even further, necessary interventions to the tune of $1 trillion back in '08 and '09, the beginnings, the initial expansion of the Fed balance sheet. Now it's time, I think, to anticipate a doubling of the balance sheet, even as Warsh is talking about shrinking it.Kevin: What we've talked about with our clients, many times with precious metals, because we do have volatility in the metals market right now, but there's sort of two tranches that you own. There's the portion that you own outright on a one-to-one basis for preservation, and you just ignore it. You don't try to time the market. And then the second tranche would be the portion of your assets where you're actually trying to time it and make it grow. So the momentum right now, I mean high volatility, there's a lot of pressure on the leveraged guys even in the metals markets, the guys who aren't owning it on a one-to-one basis, but maybe many multiples to one.David: Yeah. And that's what you see expressed in the futures market where the greatest volatility in metals comes from, five to one leverage in the futures market all too common, and that's where the vulnerability, the higher volatility gets expressed. But just as a reminder, volatility is your friend. Volatility, if you're interested in compounding ounces, if you're looking at a portfolio and wanting to use the gold/silver ratio just as one expression of that kind of intra market arbitrage, without the volatility, there is no opportunity.Kevin: Right.David: And so we went from 80 last year down to 43, back to 70. That's not disconcerting. That's the smell of money. Higher volatility is where the opportunity is embedded, and what is uncomfortable is if somebody steps into the metals market for the first time, higher volatility, increased pressure on those levered speculators in the futures market, ends up taking any asset class to the woodshed. Metals aren't exempt from that, but the bigger picture is too important to ignore. The Caymans, the combined spread and basis trades, the unwind of the yen carry trade, which is just a massive trade. I don't think there's even— Nobody has their arms around just what the yen carry trade is.Bloomberg notes that the trade unravels if the riskier assets tumble or the yen rallies. And in that same Bloomberg article, they quoted bank credit analysts commenting that our hunch is that the next unwinding case will also be triggered by a combination of a drop in carry assets and/or a rebound in the yen.So are the carry assets tied to the AI narrative? We certainly have the fading of the AI narrative. It just suggests to me that we have troubled waters ahead, and the last upcycle, the last upcycle in precious metals, 2025, driven by central banks and then some late comers to the market, and frankly seeking gains, chasing profits. I fear the next metals move will be less driven by greed, which we just finished, and more by fear. The most powerful precious metals moves are driven that way, which is uncomfortable to say because the best is ahead, but from a macro stability standpoint, still is the worst.

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Well, 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.

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The McAlvany Weekly Commentary February 11, 2026"Maybe the remainder of 2026 is boring in the physical metals. I tend to think not. And a part of that is because we're dealing with a monetary regime change that happens—you can't even say once in a generation. And the last significant monetary regime change was sort of the death of what had already died. Bretton Woods had already come to an end by the '70s, but it was sort of a global acknowledgement that Bretton Woods was dead—double dead. And less than once in a generation, you see monetary regime change." —David McAlvany

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Kevin: Welcome to the McAlvany Weekly Commentary. I'm Kevin Orrick along with David McAlvany.David, on Sunday when we were watching the Super Bowl, I leaned back and I told my wife, I said, "I can't believe it was 26 years ago that we were making comments about how many dot.com ads were on the Super Bowl." At this point, it was AI ads everywhere.David: AI. Oh my gosh.Kevin: It felt so similar to 26 years ago.David: But very different than 2025. It was all crypto.Kevin: All crypto 2025. Ooh—David: Only one.Kevin: —we can talk about that later.David: Only one for Coinbase.Kevin: Yeah. So what do you think about all the AI? So there was anxiety last week and that was specifically where it was.David: Yeah, that and the FAANGs. I think you look at the FAANGs, you look at the NASDAQ 100. They were getting clobbered alongside crypto. The crypto carnage extends into this week with bitcoin remaining in the 60s and the lesser market cap cryptos are also slipping below 50% of their peak values. Bitcoin, we were third quarter last year, 126,000, so about 68,000 now, 62,200 at the low.Kevin: Well, and ethereum's getting hit as well.David: Ethereum from nearly 4,900 to 2,100, and ripple from 350 to 144.Kevin: Wow.David: So the mood has shifted. Speculation in crypto has lost the narrative and lost momentum. And of course it had that momentum up into the second or third quarter of last year.Kevin: Even though Scott Bessent is saying things that are positive from the White House, right?David: Well, absolutely. And clearly, from the Oval Office the White House has supported the efforts, set aside the massive conflicts of interest with Middle East countries investing directly in the Trump-named cryptos. Fabulous, fabulous narrative there. If you want to write some history, it's going to make its way into the history books for sure.So we've got White House support, you've got Wall Street adoption, and you wonder if or when the public throws in the towel. Liquidity dynamics are waning in that space, and you can see it beginning to impact some of the markets like private credit and private equity. And we have not seen a change in liquidity dynamics with corporate credit. That remains fairly robust.The financial market indicators that we look at every week, there's not been a massive shift, not a massive downgrade. With an increase in volatility in equities, in tech, in metals, you're not seeing a significant shift in terms of credit market dynamics yet. Certainly some pressure at the long end of the curve, certainly some pressure with sovereign paper, 10-year and beyond. And a widening between the 2-year and the 10-year in almost every jurisdiction, but certainly in the US too. So there are significant shifts within fixed income, but no real stress points within corporate credit where you are seeing stress points. Again, we come back to crypto. Michael Saylor, his strategy, the company that basically banks crypto, borrows to buy even more.Kevin: A lot of leverage.David: Yeah. It's now underwater. It was last week on its bitcoin holdings. If you look at the cost basis, they're now breathing through a snorkel, so to say. Q4, they reported just over a $12 billion loss. And I think that was for the full year. But if crypto prices don't turn very soon, Saylor will be dealing with the dark side of leveraged crypto treasury holdings. He owns over 3% of all mined bitcoins. And so just imagine a world where you've got forced liquidations. It's not improbable.Kevin: You talk about crypto, and last year we did have a lot of crypto commercials on the Super Bowl. The AI side of things, however, I think the shock this week was how much these companies are spending to show growth.David: Yeah. Worth noting, most of the tech companies are beating earnings. In fact, I think 78% of reported companies have positive results and are beating expectations, and tech companies are leading the pack there. But their share prices are getting clobbed when they're getting to the stage where they're talking about CapEx, where they're spending their money next year.Kevin: How much did you have to spend to make what you're looking like you're making?David: Well, for 2025, there was sort of record breaking. Collectively, the big five announced 650 billion in CapEx for data center and AI development in 2026. And the market is now very unclear as to, does this make sense? They're not seeing returns on that capital from 2024, 2025. And so these big numbers are coming out, and there's a little bit of a indigestion problem. So investors are—Kevin: You're talking about—David: —second guessing it.Kevin: —Google and Amazon and some of these biggies.David: Yeah. Google CapEx was announced 60 to 70 billion over what was expected. So 175 to 185 billion for the year.Kevin: Wow.David: And I think 135 was the number expected. And Amazon was 200 billion in CapEx for 2026. That's not the only spaces that are seeing pressure. Leveraged loans, private credit, as AI and tech are under pressure, these guys are kind of being sucked into the vortex too. And you're talking about non-publicly tradable junk debt of the lowest possible quality.Kevin: No buyers.David: Nope. And they'd rather just hold the portfolios and they can mark them to, instead of market, because they're privately held, mark to make believe.Kevin: Right. Like we did back in 2007, 2008.David: Right. So this is KKR, this is Blue Owl, this is Ares Management, Blackstone, Apollo, Global. Their stocks are publicly traded even if their underlying illiquid assets are not. And the stress is showing up in the performance of those names. Now down 16% to 20% year to date, some of them are off 40% to 50% from their peaks in 2025. So similar to crypto in terms of performance. The narrative for private equity, the narrative for private credit, is fading fast. You get UBS expecting default rates in private credit to move as high as 13% this year, at least according to Bloomberg.Kevin: Well, and you talk about narrative, and the narrative has been that AI's to the moon, but we also have seasonal fluctuations as well. Like the stock market in February is not usually a stellar place, right?David: Yeah. February is typically the second weakest month of the year for equities. And we've already had a rocky start in January. Q1, again, starting out on the rough side. So with 2025 attention gravitating to AI and tech, it's no surprise that we have the relative value rotation in full swing. The money's coming out of those spaces—AI, tech—and towards the Dow Jones transportation average, Dow Jones industrial average. Your basic big multinationals which have not been priced for an imaginative world, the world of tomorrow, a world where, again, it's sort of infinite growth, infinite productivity gains, and frankly, near infinite pricing. There's no cap on a market cap for a company that you attach unbound imagination to it and then come up with a price.Kevin: Yeah. It was interesting, too, to see that these AI commercials were also trying to mock the fear of AI. And I'm wondering if that also isn't to just bolster the narrative at this point, because the money has to continue to flow in. They're not making as much as they're spending is what you're saying.David: Yeah. There's a fundamental case to be made contrary to the positive narrative. Ultimately, these investments have to make money. If they don't make money, the theory is, you don't know who's going to win, so you throw money at all of them and the winner will give you such a great return it doesn't matter how much you lose in the others. But there is, beyond the fundamental case, if you're looking at the technicals in the market, NASDAQ 100 flirting with a technical breakdown at its 100-day moving average. It actually broke below that last week and is trading just slightly above it this week. If it fails to hold, you're talking about a major top being put in. So again, sort of the tech theme and the tech bias and the flows, foreign capital flows into the US predominantly going into tech. This is something that if it reverses anytime soon, could get real interesting real fast.Kevin: We could be talking about tech, we could be talking about AI and a person listening might say, "Well, I don't really own any tech or AI." But the problem is a broad market selloff. The market's been buoyed by these companies, the top seven, for years, the last couple of years.David: Yeah. Well, and that's the thing, the importance of the narrative. The AI narrative, like the crypto narrative, is losing steam. And these were successive motivators for animal spirits through 2024, through 2025.Kevin: Momentum.David: And without boundless speculative energy in the market, a broader selloff becomes more likely. I mentioned corporate credit. If that holds together, the equity markets can, too. So as goes—Kevin: Liquidity.David: —corporate credit and the ability for corporations to continue to fund themselves, ample liquidity, they'll be fine. But as I read about some major Wall Street firms—PIMCO, Blackstone, Bridgewater—they're all refashioning their portfolios in preparation for another round of inflation. They're betting that rates go higher, not lower. And if that dynamic hits the Treasury market, I think you've got a domino into corporate credit, and then ultimately a domino into equities eventually. Maybe they're wrong, rates do go lower. But anticipation of higher rates of inflation leading to higher interest rates are what you see in their portfolio shifts right now.Kevin: Okay. So this is a Kevin asking you a Kevin question. Okay. Kevin Warsh basically has already committed to lowering rates on the fed funds. How much control does he have? I mean, if everyone else is betting on higher interest rates, how does the Fed and how does the Treasury, how do we not have higher interest rates?David: It's such a funny conversation last week in a press meeting with Bessent. Will the Trump administration sue Warsh if he doesn't adequately lower rates?Kevin: Oh, wow.David: And Bessent kind of sidesteps the question is like, "Well, that's for the White House to decide." As in "maybe."Kevin: Wow.David: Maybe.Kevin: When would a Fed chairman start to get sued by the White House?David: It's a bizarre world.Kevin: Wow.David: Yeah. Warsh is committed to lower the fed funds rate, but he's also well publicized in commenting on shrinking the Fed balance sheet, which adds to an oversupply of debt instruments. In theory, that pushes up longer term rates. What will the markets look like if they prepare for his coronation in May, trying to anticipate, "Okay, how fast will he shrink the balance sheet? What's the impact for the yield curve? Do we see a continual stretching of the difference between the 2-year and the 10-year Treasury?" I mean, it's already as stretched as it's been going back to 2022. And so I think that number is probably an interesting tell. 2-year, 10-year spread.Kevin: So "buy the rumor, sell the news" is going to be interesting in May. Right?David: Yeah.Kevin: Yeah.David: He may want to shrink the Fed balance sheet, but I wonder if such a feat is possible in the context of runaway Treasury issuance. We've seen this now for a couple administrations. This is not just the 2.32 trillion that was added to the debt last year. We had 8 trillion added by the Biden administration.Kevin: Right.David: We also had 8 trillion added by Trump in his first round as president. So he started adding it up.Kevin: Trump is moving a little faster now, isn't he?David: Right. I mean, he's single-handedly responsible—or his administrations have been present when 10.23 trillion in debt has been added. We're not slowing the pace. So again, how do you shrink the balance sheet and take that supply, bring it to market, when you're already over-supplying the markets? One thing that happens in that context is rates rise. So granted it may be further out on the yield curve and maybe they're not worried about that. But I'm concerned that you start to pressure rates at the long end of the curve, even the middle of the curve, and it has a major impact on corporate finance. This is where you're constantly rolling out—Kevin: Which is the duct tape that's holding everything together, right?David: As goes corporate credit, so goes corporate equity. How realistic is it for him to lighten the Fed balance sheet in the context of an oversupplied Treasury market? I don't think it's possible.Kevin: Well, you said privately there's basically preparation for higher inflation, or at least inflation sticking where it is. Gold, through all this volatility over the last couple of weeks, it's doing really well. I mean, what's your thought on gold? Because gold also is a signal as to what we see coming.David: There's an interesting article in the Wall Street Journal on sort of anticipating higher inflation rates this year. And I printed it off, I read it, and I was completely disappointed. Well, first part of the year, that's when people are raising their prices. And then they mentioned Cheetos and Pepsi. And you're going to see a decrease in prices because they want to recapture some market share. They're realizing that consumers are being priced out of Cheetos and things like this. But their main point was, if you're servicing a pool, if you're going to increase rates, you do it at the beginning of the year and then that's where you see an inflation. So they're looking at seasonality as a factor for inflation. And maybe that is a factor.Kevin: But you're talking more systemic.David: Yeah, exactly.Kevin: Not Fritos. I mean, Fritos went up when, I mean, if you remember toilet paper Fritos and hand sanitizer for COVID. I mean, you couldn't find Fritos. That was almost a tragedy. But going back to gold, I mean, gold is still signaling that there's a long ways to go in this dollar debasement.David: Well, gold held up very well last week. Silver remains under some pressure. And this is very interesting. The miners are holding their own. And I think part of that is coming into Q4 reporting, year-end reporting. So we'll cover this maybe at the end of today's comments.Kevin: Okay. Well, one of the questions that a lot of people have is real estate's been high for a long time. Commercial real estate, part of the McAlvany Wealth Management platform is to sometimes have specialty real estate, and I don't think you have any in there right now.David: No, we manage basically four portfolios inside of one. And so specialty real estate is one segment. Global natural resources is another. Infrastructure is the third, and then the precious metals miners are fourth. So we're diversifying across 50 or 60 names, and that specialty real estate segment we left completely.Kevin: You're not seeing any bargains.David: No. And things are getting to bargain levels. The question is, is there catalyst for growth? Because we can have that portion of the portfolio in short-term Treasuries earning 3.5%, 4%, depending on what the rates are, not take the risk. And what we have in the last three years done is sidestep a 50% decline in—Kevin: In real estate.David: —in quality companies, but they are levered plays on real estate, and very sensitive to interest rates. And as interest rates have come up, now all of a sudden their growth model is somewhat impaired. So we need to see some sort of catalyst for growth, not just bargain hunting. They would be still in the category of value trap. But, yeah, I mean, if we wanted a reestablished basis today, we'd own twice the number of shares for the same dollars allocated. Still, it's not interesting enough. We can look at the reward side of the equation. Dividend yields are up because of the diminishment in share price. So all of those factors are attractive, except we can't get our arms around the risk side of the equation. And this is where, again, if there's pressure on rates, then you can continue to see balance sheet pressure for these levered real estate companies.Kevin: So what you're seeing is a continued selling of real estate at this point.David: Yeah. And even this week, real estate selling steep discounts, Brookfield Asset Management let go of a Chicago office, 87% less than the original price paid back in 2018. 306 million was the purchase price. If I did the math right, just under 40 million, 39 and change. Yeah. I mean, that's—Kevin: Well, that's a fair amount.David: Is it a bargain? Assuming that you can fill it—and one of the reasons why it's cheap is because they've got a 53% occupancy rate. So it's not like an at-capacity— It's got an issue, and the only way you can adjust for that issue is to discount the price. We continue to see the discounting occur in commercial real estate.Kevin: Well, and the beauty is when that discounting looks like it's finished, you're going to have some bargains that you can buy.David: Absolutely.Kevin: Yeah. Well, I'm going to shift gears here, Dave. One of the things that's been distressing to me over the last week or so especially, but last few weeks with the Epstein files, is the United States should be setting the tone for ethics and morality and protecting child trafficking, that type of thing. And yet at this point, it seems like the United States—the administration—is trying to make it look like it's really no big deal, and it's Europe and some of the other countries that I honestly don't think of as moral or ethical beacons for the world, they're the ones right now that are raising Cain.David: Yeah. And what is at stake ultimately is an institutional loss of confidence, whether that's because you take a reputational hit, the FBI, the DOJ, the CIA, but the Epstein files are really under minimal scrutiny here in the US. And so you could say failure to execute on Pam Bondi's part.Kevin: Which is very disappointing.David: So thanks, Pam. Thanks, Donald. So in Europe, it's the microscope which is out, and we're already seeing heads rolling. Communications, shared communications in these Epstein files, past relationships, they're forcing resignations and the ouster of friends that spent a good bit of time on Pedo Island.Kevin: Yeah. Well, and a lot of these people should be spending time in jail, not just losing their position.David: Yeah. I mean, Bondi and Trump, they're showing little interest in the trafficking and abuse of children. And these are powerfully connected, previously untouchable elites that are coming under pressure. And it is, it's overseas. The Swedish UN official, Joanna Rubinstein, she resigned. The Norwegian diplomat, Mona Juul, was fired. These are not all men, by the way. So that's an interesting twist. Norwegian chair of the Nobel Prize Committee, he ran the Nobel Prize Committee from 2009 to 2015.Kevin: Is he the one who gave Obama his Nobel Peace Prize?David: Yep. And he was an island regular, but yeah, it was also the man that awarded Obama the Nobel Prize. He's under pressure. So you've got Lithuania launching human trafficking probes. You've got Poland, France, and the UK. There's pure irony in the UK looking at this stuff. Launching investigations into officials, any officials that have ties to Epstein.Kevin: You know what's amazing, though, it's coming out that Epstein actually was seeking legal counsel on how to legally run this totally illegal operation.David: It reminds me a little bit, you go back to the nuanced conversations that Bill Clinton had when he was at the Starr Commission. I think it was—Kevin: The Kenneth Starr, wasn't it?David: Yeah. Yeah. We're talking about the definitions of things and looking for technicalities. And Kathryn Ruemmler, she's now chief legal officer and general counsel at Goldman Sachs. That's her role today. She was Obama's White House counsel. And according to the latest Epstein documents released, providing legal advice to Epstein on sex with minors.Kevin: So she was Epstein's legal counsel on that as well.David: Well, at least a friend in the Rolodex that you could call when you're looking for these critical distinctions.Kevin: That's disgusting.David: Trump has a choice to make. He can either prosecute offenders, or I think he can face the wrath of constituents. And you can't simply turn the page, as much as he'd like to. The magnitude, the breadth across the American governing class, and you're talking about national intelligence, you're talking about the banking community, the finance community, venture capital. I mean, come on.Kevin: What does he know that will break? What does he know that will break if this breaks?David: I think he's doing a solid for a lot of friends, a lot of business associates, a lot of people who—Kevin: He's protecting the swamp again.David: He had the opportunity to drain the swamp, failed to do that in his first administration. And this is the risk he's facing. The wrath of his constituents will come out if he ends up protecting, and he has a choice to make. He may continue to protect the swamp, but come on. I mean, how is Lutnick still in office as-Kevin: I mean, how is Lutnick still in office as Commerce Secretary? Is the point that the rot is so broad and runs so deep that to expose it would fully undo the upper echelons of US leadership? I would see that as a net positive. But again, I'm kind of in favor of draining the swamp.Kevin OrrickWasn't there a movie about the elites having something like this going on called Eyes Wide Shut? I mean, maybe that's what we should call this, not the Epstein files, but eyes wide shut.David: Yeah. If you want to reestablish trust, don't defend your eyes wide shut crowd. Don't do that. Don't do that.Kevin: Right. That's not who voted him in.David: No, that's right. So, maybe Europe will shine a beam of truth into the misconduct of the global elite, maybe, because Bondi and Trump are at this point unwilling to lead. And I hope they flip the script on that. Maybe the only thing Trump will understand is a beat-down in the midterm elections, because you're talking about fly-over America may just be disgusted enough through this whole episode to be a no show. Tired, perhaps, of watching the reality show Trump is sponsoring from the Oval Office.Kevin: So, how is it that Europe is the one who's actually crying foul right now?David: Yeah, it's an interesting question. Like what's in it for them? I think it is probably not for moral and ethical reasons.Kevin: Right. You think it's a power shift there too, possibly?David: I think it's the power play. And it destabilizes the Trump regime to some degree, or at least puts pressure on friends of friends. And as far as we can tell, it's not Trump who's under the microscope here. So, I really don't understand why he's putting up as much muss and fuss as he is. Even this last week—Kevin: He wants you to focus on healthcare instead, Dave.David: That's what he said. He said, "I think it's time now for the country to get on to something else like healthcare, something people care about."Kevin: Pay no attention to the man behind the curtain. Don't look at my left hand while I'm showing the right hand a magic [unclear]—David: And I think he's missing the point. This isn't about him. It's not about a big reveal as to Trump misdeeds. It's about our society and whether rules apply to everyone. If money and status ensure that you are beyond or above the law, we're flirting with end-of-empire dynamics. I mean, the rule of law is a critical foundation we can't afford to lose. If you look at how we invest— And one of the things that we do is we look at tier one, tier two, tier three, tier four jurisdictions where we know that contract law is going to be respected, where property rights are going to be upheld.And if you begin to in any way erode the rule of law, what you are doing, as I said earlier, you're ultimately compromising institutional integrity.Kevin: When you interviewed Hernando De Soto, he talked about the contract law being so critical to the Western world and the prosperity of the Western world. That was fascinating. But Dave, there's another book and I've recommended it again to several younger guys here at the office that didn't have a chance to read it, but it was Frédéric Bastiat's The Law that was written back in the 1850s. Again, every listener should read at least the first five or six pages of that little book that was written by the Frenchman about what law is for and how it can protect you, but—David: And what it's not for, because he also raises the possibility that the law can be used as a cudgel to abuse.Kevin: Right. Lawfare.David: Lawfare. Yeah. So, going back to DeSoto's book, trillions of value can be unlocked and a middle class can thrive if they can establish clear title to their property. And in so doing, be able to leverage that, to be able to start businesses and allow free enterprise to operate in a way that is very, very much inclusive across the socioeconomic spectrum. Again, it hinges on the rule of law.Kevin: The rule of law.David: And one aspect of it.Kevin: Exactly. Exactly. Well, I think the subtitle of his book was Why Capitalism Works in the West and Nowhere Else, and it had to do with the rule of law. But let's go back to healthcare because I don't want to diminish the fact that Trump is saying let's focus on healthcare. I think most people would like to see healthcare solved.David: Yeah. I think this is certainly beyond the issues with healthcare, which if you wanted to look at it through the lens of tort reform and what it costs to deliver healthcare versus what it costs to ensure against lawsuits, I mean there's certainly reform. I think reform needed. Where I think you're aiming is with reference to the K-shaped economy, where you've got those at the top who are doing very well, those at the bottom who are not. And healthcare is one of those costs that if you do have health issues or you're just trying to ensure against the possibility of that in your life, those costs are really not affordable.Kevin: When you talk about K-shaped economy, the absence is the middle class. So, there's the low, there's the high, but middle America right now does care about healthcare. They're basically speaking up—that, and the price of food.David: Pew Research did an interesting— They do samples all the time, and it does suggest that healthcare matters to the middle class, just not in the same way that it does to Trump as sort of a redirection of attention. Three in 10 Americans rate economic conditions as excellent or good. It's 28%. So, that's the top end of the K-shape.Kevin: I thought Trump said it's never been so good.David: Well, seven in 10, 72%, rate them as fair or poor, and the majority say that they are concerned about the cost of healthcare and food and consumer goods, to which Trump responds, and he said this this week, "I think we have the best economy maybe we've ever had. 50,000, the Dow hit." Most people felt if I could do that in my fourth year, well, we did it in my first year.Kevin: I love how he measures based on the Dow.David: Right. And if he wants to own the Dow at 50,000, will he equally own the Dow at 25,000 or a more crack up boomy 100,000? I mean, we could get to 100,000. I just don't know what your dollar's worth. I mean, Dow at 100,000—Kevin: Well, didn't he predict 100,000 Dow?David: Yeah. Well, he did. "I'm predicting 100,000 on the Dow by the end of my term," and he may be right with the dollar trading 40% lower, with Starbucks coffee passing the $10 mark.Kevin: What would gold be if we have Dow of 100,000, do you think?David: 25,000? I mean—Kevin: I hope not. Yeah.David: Well, exactly. No one wants to see that. A crack up boom is good for nominal prices of all assets, but it's also the death of our middle class.Kevin: Mm-hmm. It's the middle part of the K. It doesn't exist.David: And I think it's really a generational reset into banana republic dynamics. Desperate masses whose votes are easily collected by exchanging the bare necessities of life. We can provide housing, we can provide food, and you can provide a vote. And that's the nature of a banana republic.Kevin: Can't get bare necessities out of my mind now that you said that. ♫"Look for the bear necessities..."♬ That's right.David: Well, Trump's also talking about a 15% GDP growth.Kevin: Well, you can do that with inflation, can't you?David: You can do it with a lot of debt.Kevin: The Chinese-David: A lot of government spending.Kevin: —printed a lot of money to do higher GDP.David: And that would of course be in nominal terms, 15% nominal growth, not in real terms. So, we could have double-digit GDP growth and still hover in the low single digits net of inflation. And that's what I think, coming back to Blackstone, PIMCO, Bridgewater, largest hedge fund in the world. Why are they preparing for another round of inflation? Why are they positioning their portfolios in TIPS, Treasury inflation-protected securities, and hedging against a rise in interest rates? I mean, if you're going to shoot for a 15% growth rate, you're talking about a red-hot economy, you're absolutely married to a higher inflation rate.Kevin: Well, I wonder if this is going to be the issue in 2028 when we're electing a new president, if inflation's going to be the major thing.David: Right, exactly. I mean, that could well slay the GOP in 2028. Got growth? Yes. Got stock market largesse? Maybe. Got inflation? Well, PIMCO, Bridgewater, Blackstone, they won't be surprised, and I don't think you should be either.Kevin: Okay. So, maybe Trump's legacy might just be the things he names after himself. I mean, airports in Washington DC and I think with Lincoln Center, right?David: Yeah, let's forget the contributions of Dulles. Penn Station is no more. I don't think his legacy will soon be forgotten. Let me say this because certainly the tone's been critical of the Trump administration today. There's some experiments with reestablishing economic vitality in the US, which, if successful, mark a very hope-filled trajectory for the US. Whether—Kevin: Right. So, you're not trying to be anti-Trump. You're just basically criticizing the way it's being gone about.David: If he wins, there's still losses. There's trade-offs for every choice that we make in life, and every policy comes at a price. And so, what I'm concerned about is that the price of his success will not be felt by the upper class. If you have assets, you're going to see them inflate in value. If you don't have assets, you're going to be pressured by higher rates of inflation, and that's not fair. Yeah. So, his name on DC Airport, his name on New York rail stations, his name on performing arts center, his name associated with a debt crisis and the subsequent management, which reshaped public policy for a generation.Kevin: The Trump debt crisis. Yeah, it may be coming.David: No, I think he will not be forgotten. His name will live in infamy. Maybe it'll be Del Ego or Del Taco or the Orange Borough that misidentified himself as a pachyderm for a time. He has three years to do the right thing. And I think what he needs to hear from his constituents is that they expect more of him. And if they're not vocal, then he's a guy with his finger in the wind, and wherever the wind blows, that's the way policies will be directed.Kevin: Okay. But for now—David: We can't have him caving. We can't have him turning a blind eye to abuse.Kevin: And we need to call him on it. I mean, you can still be a supporter of the administration in many ways and call the administration on the things that they're being hypocritical on. But going back to the volatility currently, because because the Nasdaq, the cryptos, all we heard was that crypto was the new gold a few years ago, and I'm not thinking that's the case.David: This last week was very notable for volatility across asset classes. And also somewhat absent was indications of stress as a result. And again, you look at VIX, fairly well contained.Kevin: The volatility index.David: You look at the VIX and the move index. You look at, again, the measures of increased likelihood of default. You can see that in CDS pricing, in credit spreads, not a lot going on, not a ton going on.Kevin: Which means there's not a lot of worry even though there's a lot of volatility.David: And yet we've got swings in the market which engulfed private credit players, very significant. We've got the Goldman Sachs Most Short Index, which looks like a frigging yo-yo. And we've got software service companies coming under massive pressure. Part of that's because Anthropic may have plugins with their AI strategy that make a lot of SaaS product irrelevant. So I mean, you could be looking at the death of software.Kevin: Right. Doesn't that happen in technological revolutions anyway? You all of a sudden have something that bypasses what you thought the road was going to be.David: Yeah. We also had volatility in banks. We had volatility in the Mag 7. We had more volatility in silver. I mean, all of these were violently up and violently down, which is a hallmark. It's a hallmark of hedges being put on. It's a hallmark of hedges being taken off. These are derivatives positions, which again, in an attempt to either speculate for gain or hedge against loss are being jerked around. And it's volatility that suggests that your buy and hold crowd right now is very, very marginal.Kevin: This is strong hands.David: Your hot money, this is your fast money crowd, which is caught from day to day with too much market exposure. Either too much short or too much exposure long. And again, the derivatives market, we include futures for silver. They're painting a very bloody tape.Kevin: Okay. So we've got crypto violently moving up and down. We've got the AI narrative, what we talked about. But gold itself, even though we've seen volatility in gold and silver, it's a different nature than what we're talking about.David: Yeah. Well, and I think for short-term volatility to extend to a longer term trend dynamic, the narrative, the narrative has to shift. And so if a narrative dies and what was sort of propping up an idea simply goes away—I can see that with AI. I can see the narrative shifting with crypto. I can see that with the broader markets when you consider valuations already stretched.Kevin: But has the narrative really shifted for gold in the last 4,000 years?David: No, I'd note a few differences in the metals market, and these are nuanced differences, but I think they're supportive to a longer-term bullish case. First of all, gold is the dominant metal. If you're talking about the precious metals, in last week it was remarkably resilient. So we have a big selloff, right?Kevin: Silver a little more pressure on the downside.David: The gold's still up 15% year-to-date. Small gain last week, 1.4%. The miners are also bucking the downtrend on a relative basis.Kevin: Is that because the profits are so high compared to what they're producing right now?David: Yeah. If you look at the Gold BUGS Index, HUI, still north of 15% gains for the year. And I think you raise a critical point. With the correction in metals, at current levels, miners are making more money than any time in history.Kevin: Yeah. So earnings, earnings are up on that.David: Yeah. Lower prices would erode that, of course. But a stabilization at these levels is a net positive for mining investors, even if a bit boring for the holders of physical metals. You own silver at 80 bucks an ounce, and it doesn't move for the next six months.Kevin: Right.David: Didn't do you any good. It didn't move. Volatility is your friend either because you either want to see a gain or you want to add to a position at a lower price.Kevin: But if you're pulling it out of the ground, what's the production cost on silver right now?David: Yeah, that's a key point. Silver, far more overbought than gold, remains under pressure. That's not necessarily positive commentary for silver per se, but for the miners, you're running an average all-in sustaining cost—that's factoring in all of your cost of production—between 18 and $25 an ounce.Kevin: That's a lot of profit. Even if we were at 60 bucks an ounce for, like you said, 60, 70 bucks an ounce.David: It's more money than they've made in their history ever, ever. I see a very positive skew for all the miners in 2026.Kevin: Well, and they had cleaned their books up. They had cleaned their management up during the dark years of the teens, the 20-teens, right?David: Yeah. And to be clear, you can throw that out. You can throw that out if the commodity prices slip further. But assuming a stabilization near these prices, you're talking about all-in sustaining costs being here and the prices that you're getting in the open market multiples of that. So if it's $18 to $25, and in fact, we've got one company in our portfolio that's closer to $14 an ounce.Kevin: Wow.David: They're making real money.Kevin: Yeah.David: They're making—Kevin: They're laughing all the way to the bank.David: So take another $10 off the price, certainly it tames enthusiasm for the space, but you're talking about companies that are minting, minting money. All-in sustaining costs for gold miners, on average, call it 1,700 bucks. Some of our companies coming in below $1,200 an ounce.Kevin: Wow.David: 1,200. So we're sitting right around 5,000.Kevin: There's a lot of earnings.David: Free cash flow is shocking. Building cash, paying down debt, expanding exploration budgets, paying dividends, buying back shares. 2026 is flat out exciting. So volatile, yes. But let's remember where we were even a year ago, $3,300 gold, silver in the 30s. In the 30s. These are substantial prices for the miners. And frankly, they're financially transformative. More is better, of course, but where we're at certainly does suffice. I mentioned value rotation from tech to transports—Kevin: Can you imagine, if that value rotation actually comes into such a tiny, tiny market, Dave, the metals market, the metals mining shares.David: It gets interesting. And people can do the math. People can do the math. So the fact that they've got more free cash flow and have the ability to expand their exploration budgets and expand their reserves and resources, this is good. This is good. Maybe the remainder of 2026 is boring in the physical metals. I tend to think not. And a part of that is because we're dealing with a monetary regime change that happens—you can't even say once in a generation.Kevin: Right.David: And the last significant monetary regime change was the death of what had already died. Bretton Woods had already come to an end by the '70s, but it was sort of a global acknowledgement that Bretton Woods was dead, double dead. And less than once in a generation you see monetary regime change. And—Kevin: I wouldn't mind boring for a while, Dave. The last couple of months in the metals market— I wouldn't mind a little bit of boring. I mean, in the long run, we know where it goes.David: What's not boring is the fight for monetary preeminence and significance. And this is not neutral territory. It's not as, if we can just maintain a stable dollar, then we'll maintain our position. We actually have competition, global competition. And you see that particularly from China where Xi Jinping, even in recent days, has basically said we will be a reserve currency.Kevin: And it takes gold to do that. Because of the exchange in Shanghai—David: Right. Morgan Lewis, who's a co-portfolio manager with McAlvany Wealth Management, pointed this out in this last week's Hard Asset Insights. Dating back to 2015, the Chinese have been very clear that the launch of the Chinese, the Shanghai Gold Exchange and the expansion of Chinese reserves, this is a long-term play towards global reserve currency status. So these are very significant trends, and they play out over long periods of time. I don't see the narrative shifting in the metals the way I do in tech, the way I do with AI, the way I do with crypto. So the value rotation will have a positive impact for hard assets more broadly, certainly more broadly than the miners. And we're enthusiastic about the whole space. Yeah, I think this is going to be a very, very intriguing and beneficial year, 2026.

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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.

• Gold & Silver Bull Market Intact After Violent Volatility
• 6 Years Of Silver Deficit Point To Higher Price
• Central Banks Are Net Buyers Of Gold

"The experience of this last week, people think volatility is their enemy. It's not. Volatility is your friend. This is the nature of ratios. It is a measure of volatility between two assets, and it's telling you when something is overvalued or undervalued. And in the 40s, silver, relative to gold, is getting overvalued, which is why we shift to the undervalued asset. You're taking risk off of the table and at the same time you're able to compound ounces, but you can't compound ounces without volatility in the ratio."  - David McAlvany

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Kevin: Welcome to the McAlvany Weekly Commentary. I'm Kevin Orrick along with David McAlvany.Well, David, it never fails. I don't go out of town that often, but I was in Boston last week and I saw what happened to the market. But to be honest with you, it was nice to be in Boston during that volatility.David: Well, I think the last time we had significant market volatility, you had gone fishing.Kevin: Lake Powell, 2013. Yeah, don't remind me. I get twitchy on that one. But go back to Boston.David: We all get twitchy when you've got volatility. I get it. I get it. Anyone who's been in the markets for any period of time at all, there's battle scars, a little PTSD.Kevin: But while I was there, I was learning so much history, and Paul Revere, being a silversmith, going through the various museums and realizing that wealth back in the 1700s was fashioned into silverware. It was fashioned into cups. It was fashioned into many things just so that they could hold on to their wealth. But you had solid gold cups, spoons, you had a lot of silver, obviously beautiful silver from Paul Revere. But we look back and it's not just to be opulent. It actually was a store of wealth, and that's how it was treated.David: Well, sure. We've got the history of not being worth a Continental, right?Kevin: That's right.David: You go through periods of inflation and people want to own something real. Last week I asked, how long does this continue?Kevin: Yeah, the drop.David: Was it merely a question about gold and silver prices rising? Because when we recorded last week, we were still in the triple digits. And my response was, "Well, the question is one of global dysfunction and policy dysfunction." And you can categorize policy dysfunction in many ways, monetary policy, fiscal policy, international relations, domestic political policy objectives. These catalysts for dysfunction and uncertainty were not resolved on Friday, January 30th, with a downside whoosh. As tempting as it might be to call a top, that was not it.Kevin: And we were uncomfortable, Dave. We were talking about it. We were seeing a vertical rise on both gold and silver with no correction. And obviously, a part of that had to do with the people who were buying it. Central banks don't necessarily sell to speculate.David: And it's not the price we're concerned about. It's the pace. 65% in one month—Kevin: Rate of change.David: —that's ultimately not sustainable. That does not mean that the market is over just because you've got a correction and the market now finding its feet. So gold and silver have and they continue to register a no confidence vote. As far as I can tell, the motivating factors for a no confidence vote remain firmly in place, market volatility notwithstanding.Kevin: But many of our listeners, including myself, to be honest with you, would ask how long does this continue and how far does it go down?David: Yeah. Clearly with a violent move lower on Friday and Monday, we can pause and ask the question, how long does it continue, this up move? Is the bull market, so recently catapulted into public attention, over in a matter of months? I think not. Do recall that the speed, the pace of ascent was really the concern last week. And the pace of ascent really only picked up steam in November.Kevin: Right. It's been a strong bull market, but it started to go straight up parabolic.David: But bull markets last an extended period of time. So November to January, it hardly captures it. So is it possible that a powerful market move driven by global macro fundamentals and compelled by growing consensus that US dollar hegemony is going to be retired, have such structural changes ever concluded in such a short period of time? Not ever, not ever. Now granted, monetary regime change doesn't happen often. So we don't have many historical periods to compare to.Kevin: Well, you talked about not worth the Continental, and being around Boston where that really was the spark that started the American Revolution, but that spark actually had to do with being under the thumb of a government that couldn't pay its war debt.They had gotten to the point where they were taxing without representation, and not worth a Continental, let's face it, King George was doing something to colonists that they didn't want to have continue. And one of the things that they did was they found their own way. Gold and silver does that sometimes, doesn't it?David: Yeah. I recall that the dollar was on its way to a similar scenario where the global community was not interested in our currency. And go back to 1970s when Kissinger and company appealed to OPEC and the Saudis and extended the life of dollar hegemony past the Bretton Woods system via the petrodollar recycling commitment, where any oil traded globally was going to settle in dollars. That created a natural demand for something that had a growing supply, a disturbingly growing supply.So to whom is that appeal made now? We don't go back to OPEC, and we can't go back to the Chinese. We had the trade dollar recycling, buying lots of cheap Chinese goods, and the Chinese taking those currency units, US dollars instead of inflating the value of the currency and currency translation. They maintained trade competitive advantage, keeping their currency low, by turning it back into US Treasuries, US dollar assets.Kevin: Yeah. Well, the question, how do you close the gold window in August of 1971 without the dollar failing? The answer to the question is just what you talked about, the petrodollar. Well, you just make sure that all oil is traded in dollars, but that started going away, especially in 2022 when Ukraine was invaded and we basically told Russia they couldn't sell their oil in dollars.David: Yeah. I see the gathering throng of precious metals investors continuing for as long as uncertainty is fed by dysfunction and is fed by dereliction of duty. That's not an isolated critique of US leadership. Seeing no event or transformational shift in the thinking of global leaders, I remain compelled to treat precious metals as the lifeboat necessary to move from imperiled assets—bonds, stocks, and fiat—to safety and to solid ground. These assets are indeed, I think, imperiled by the reversal of unsustainable financial structuring.Kevin: And we're not talking, necessarily, about the mass markets buying gold right now. What we're talking about, last week, strong hands. These are people who buy gold for other reasons than speculating on price.David: Yeah. And the price moves here and there, less important. Reading HAI over the weekend—that's Hard Asset Insights that Morgan Lewis puts together for us—I agree that the secular changes afoot on a global basis in the compound spheres of trade and capital allocation and reserve asset management, those remain firmly entrenched.These changes are of a nature that one strong push up in the metals market and one strong pull down in price, that's not sufficient evidence of institutional reform, of bureaucratic sobriety, or a reset that cures the policy ills layered in over multiple generations.Kevin: Yeah. Well, again, when you're not working with short-term traders, it's sometimes hard to use the charts. But the charts are still saying that we're in a bull market, are they not?David: Yeah. There are actors and agents that have so debauched our financial markets, and wittingly or not traded short-term expediency for long-term stability. And that's a part of the nature of democracy. We've explored that with previous guests, but such shortsighted recklessness, that sets the stage for a comeuppance the likes of which we haven't seen in decades and perhaps ever.Kevin: And you're talking about this irresponsibility. It has to do with printing money and credit, right? That's really what causes this and—David: To accommodate promises that you really cannot afford to make.Kevin: And so when the announcement was made of Trump's pick for the Federal Reserve, Kevin Warsh, the aspect that hit all of a sudden was, "Okay, everybody else is irresponsible, but Kevin Warsh is going to be responsible and he's going to be a hawk." Nobody can step in there at this point and raise interest rates, can they?David: Yeah, the mechanics of raising rates in an environment where you've got growing towards $40 trillion in debt, not really possible. The idea that he is somehow hawkish, we can all be settled in our minds that's not the case. His former colleagues, employees at Bridgewater, working with Ray Dalio for years, not the case. It's just simply not the case.Kevin: Well, Trump's not going to put a guy in there that's going to cause a recession. Let's just face it.David: No. In fact, the idea that he would be more hawkish and that somehow would be why Trump picked him is at direct odds with everything that Trump has been asking. And yet the market somehow is triggered by this notion that we're in a new regime with new leadership at the Fed. And money and credit, these are basic inputs in the modern economy. And in fact, so basic we hardly think of them day in and day out.When there's too much of them, again, we think nothing of it. We benefit from the buoyancy that money and credit—in massive quantities—add to asset values the world over. And we just think that that's normal. Asset prices go up. Well, actually, they do when there's excess liquidity. And liquidity, like a rising tide, it lifts all boats. We take, just like we take money and credit for granted, we take liquidity for granted. And we attribute to ourselves and to our brilliance the results that it brings, which is a bull market in all things.Kevin: And the ability to borrow. That's the credit side.David: Yeah. We forget there's a dark side to credit. Credit ebbs and flows. And if you forget the reversal of the tide, the current will grab, the current will pull and rip you out to sea.Kevin: Well, and this is important to know. We have always talked about precious metals being a hedge, like you said, a lifeboat. You're not impressed with the momentum as far as it being a short-term trade.David: I'm not bullish on precious metals because of momentum or because of short-term gains. I remain bullish on metals because I see dysfunction multiplying on an exponential basis. We've often described gold as stupidity insurance. I'm bullish on metals because the cycle of greed has run its course, and the safe haven appeal of the metals is still in the early days. So as fears press from the subconscious to the conscious mind—and that I think is going to be led by headlines and events and market behaviors which simply illustrate the scope of dysfunction—I think that's where global investors persist in, frankly, the only opt-out instrument that keeps them liquid and loaded with options.Kevin: Well, I've got to feel, though, the violence of the downturn that we saw on Friday and Monday. It did remind me of that fishing trip in 2013. I'll never forget it. It's April 12th, 2013. It was like, oh gosh, I take one day to go fish, and the market moves more than it had moved in years. Being in Boston, though, seeing the same thing, it's interesting, Dave, how you relax. It didn't bother me this time. It's like, yeah, we had a very violent move down, but hasn't it been a violent move up the last few months?David: Yeah. You rarely see the violence of a move like we witnessed Friday of last week and Monday of this week, but it's equally true that we rarely see the violence of a move higher like we captured in late 2025 and in the early weeks of 2026 in these metals, platinum included, near verticality.Kevin: Yeah. Yeah. And so long term, we still see it going up, but it still hurts a little bit when you see it go down. I mean, nobody likes to lose money.David: It feels better to make money than to lose money, clearly. I have had both gains and losses and I'll often go home, share the screen with Mary Catherine, the good, the bad, and the ugly. Calm by nature.Kevin: Mary Catherine is. Yeah.David: Yes. Philosophical by training and practice.Kevin: Right. Boston College, by the way.David: Yeah. What does it mean if it's only a paper gain? She'll ask me. Or the flip side, what does it mean if it's only a paper loss? The most routine experience I have with deflation in the broadest sense is when my market enthusiasms are tamed by the cold shower of truth and philosophical reflection. And a strange comfort, too, comes from that removed and dispassionate observer. She doesn't seem to have the same skin in the game that I do, but it's a reminder. Oh, yeah, that's right. I mean, part of her strength is in being distanced from the market noise.Kevin: Well, and that's good for all of us to do every once in a while. Distance yourself. You have to look at this, though. Even though it is central bank buying as the main buyer right now, or institutional buying, you still have traders in the game that need to make the market go both directions to make money.David: Yeah. And certainly we've gotten to a point where profit taking is normal, and you get above $100 an ounce and there's not many investors who have cost basis at 20 and 30 who aren't thinking about having at least one foot out the door. And so "do I take some gains here?" came at a natural time, overstretched from a technical standpoint. But the bottom line is that nothing has changed except that short term traders positioning with short term thinking— I just don't see that as sufficient to upset long term trades and secular trends. I think not.Kevin: Right. But you have said that the prices are high but not overbought. Has that changed?David: I would say high, but not over-owned.Kevin: Over-owned. Okay.David: Yeah, because from a technical standpoint, they definitely were overbought. And I see that overbought condition in the charts, certainly through last week. And you can look at a variety of technical indicators that suggest that the majority of that overbought condition has already been resolved.Kevin: And that's in the trading markets. When you say overbought or oversold, that's just the futures markets.David: Well, no, not even the futures markets. When I'm looking at a chart and I'm looking at relative strength indicators, when I'm looking at momentum indicators, when I'm looking at Bollinger Bands and a variety of metrics that you can impose onto a chart, you can see where things are stretched on the upside.Kevin: And we were.David: Yeah, and we were.Kevin: Yeah.David: So I see an overbought condition, a stretched price structure in the context of a long-term structural bull market. That was the reality through the end of last week. We're not stretched in terms of time. Frankly, in terms of the momentum and how momentum is gathering in the market, we're not stretched there either. I've suggested, in the course of this bull market we pass 8,000 an ounce for gold, which implies 200-plus for silver.Kevin: You're doing that with the ratio, right?David: Conservatively assumed gold-silver ratio of about 35 to 1. We've seen better numbers than 35. I'm not taking previous best numbers as a benchmark or an expectation level.Kevin: But $8,000 gold and $200 silver still is within the bands, or the bounds, of reasonable ratio trade.David: Yeah. I think gold remains in high demand among central bank reserve allocators, and it's in increasing demand by investors. I don't think that changes anytime soon. Wall Street has finally crossed the Rubicon of advising allocations to metals, and that trend is in its infancy.Kevin: Yeah. So the 60-40 that Wall Street has for decades recommended, 60% stocks, 40% bonds— With the new 60-20-20, which makes room for precious metals, there's an awful lot of money that could come out of equities and bonds that hasn't even started yet.David: Right. It's the investment allocations in coming quarters and years that will be driven by disaffection with equity and bond portfolios, resulting from shifts in the yield curve, destabilization of the underlying currency from portfolios that are inadequately allocated to hard assets in general, to precious metals in particular.And what are they presently committed to? They're presently committed to fad-like narratives. The AI thematic is alive and well, but not forever. It's still that narrative positively colors sentiment, and as that changes I think you're talking about a significant rethink in terms of capital allocation amongst the generalist investor and on Wall Street. And as I say, that is in its infancy. To hear from Mike Wilson at Morgan Stanley, this is like fourth quarter 2025 coming to the realization that going forward—Kevin: You'd better have some metals.David: Right. I mean, again, we're talking about the beginning of a trend, not the end of a trend.Kevin: Well, and speaking of trends, okay, we're talking about a new Federal Reserve chairman, but inflation, the 2% goal on inflation, what does that look like going forward?David: Yeah. Well, inflation persisting above the 2% target and having higher interest rates is consistent with both inflation trends and, frankly, a massive oversupply of IOUs. I think that's a part of what drives the capital migration to relative value, including hard assets. So again, you're thinking conventional allocations, conventional portfolio construction. It's devoid of a precious metals allocation that is just being introduced. And so why would there be a motivation to make the change? Many people are still completely on autopilot, not considering what has just been presented as an alternative model. So I think it's when you begin to see headwinds to the bond market, which we have some, but not in extremis, nor do we have real headwinds in the stock market.Kevin: So don't be shaken. Don't be shaken by what happened Friday.David: No.Kevin: What happened Monday in the metals is just a readjustment.David: Yeah, I would not be shaken out of those positions. Whether $71 silver was the low or $4,400 gold is the low, there's no evidence that this bull market is stillborn. Won't like to hear this, but the bull market remains intact from a technical perspective, even to $46, $48.Kevin: On silver.David: And even to 3,300 on gold. A complete retest of the dual breakout points of those metals at those levels, which would be 100% retracement of the entire move. While that is not probable, again, I'll say that again: while that is not probable, it is possible, and the bull trend remains intact. So again, I repeat, it's possible, but very low probability. I would not be out of the metals market with the stakes as high as they are. Anyone with a mind to give attention to macro considerations has to see this through a different light.Kevin: Well, and I'd like to talk about the different types of declines, Dave, because sometimes there's a decline that needs to happen. The market's overplayed itself, it's done. And then the countertrend declines or rises, depending on the direction of a market, a lot of times can give you confidence that the market is going the other way, right? That the violence of the countertend move—David: Yeah. The nastiest declines in a market, in any market, come when either a trend has run its course—not the case here, in my opinion—or on a countertrend basis where the long-term trend driven by powerful, driven by secular inputs, it evolves, but can be punctuated by even more breathtaking countertrend moves. And I think it's reasonable to ask which of the two this is. I asked a series of questions last week about who and to what degree the people you know are already participating in the hard asset bull market.Kevin: Virtually no one, right?David: Right. So who is? And to what degree? Have we exhausted the buyers? Because if we were at the end of the market, the answer would be clearly yes. Everyone's in. It's the shoeshine boy talking about how much they own. This is, if you go back and if you've ever watched the movie The Big Short, there's one scene in there where he's visiting Vegas to see just how crazy the real estate market has become. And they take the time to go to a strip joint. And the stripper is talking about how she owns a rental. Oh, no, she owns, what was it? Five rentals. And she owes money on all of them.Kevin: And he knew.David: And that's all they needed to know.Kevin: Yeah.David: No income, betting on a very clear and determined future, which is that real estate values will and can only go higher from here. So I don't think that was a shoeshine boy, but—Kevin: Well, and the opposite can happen too. My first year here with your family's company was 1987. And we had that stock market crash in October of 1987. A lot of people were like, "Oh, I'll never own stocks again." But the stock market was nowhere near the end of its bull rise.David: Yeah. The 1987 stock market crash was equally breathtaking. And it was in the context of a long-term structural bull in equities. The market up-trend was complemented by a peak in interest rates, which began in 1982 and began a multi-decade decline. So capital is getting cheaper. That created the opportunity for corporations to refinance their debt, to take the borrowings and increased borrowings and begin a merger and acquisition frenzy.If you look at the number of companies listed in the early '80s versus the year 2000, you lost two, three thousand listed companies because of this gobbling up. No surprise in the context of debt getting cheaper and people expanding the debt side of their balance sheet to be able to grow.Well, there were interruptions. There were sputters. 1987 with a 22% single day derivatives meltdown. And again, nearly derailed numerous times in the '90s—the most severe episode being Long-Term Capital Management and the Asian financial crisis, that contagion, 1998. But the bull persisted till the major trend was exhausted. So circa 2000, 2002.Kevin: You were a stockbroker back then.David: I was cutting my teeth on professional investing at Morgan Stanley. For metals, short-term profit taking and a short-term correction—Kevin: That's what this is.David: —that's what this is.Kevin: Okay.David: Plain and simple. How deep does the correction go? Yeah. Momentum ran hard and fast to the upside, leaving us with month-end gains of 13% in gold and 19% in silver. So even with a correction, you just step back and look, have we made progress this year in the metals? Those are annual gains which are respectable. 13% for gold, 19% for silver. That's with the—Kevin: And this is after the correction on Friday.David: Correct. So well off the 30% and the 65% registered earlier in that week. Downside momentum can take it all back. I would trust the long-term trend and factors driving a global reallocation of capital over short-term profit taking. You're talking about two very different things going on. One is, again, limited in scope, and one is much more expansive in scope.Kevin: So when you look at the technical charts, there are ways of measuring about how far you can expect the downturn to be.David: Yeah. You always want to combine, if you can, a variety of approaches to the market. Last year we had a variety of technical analysts on the program. We had the Elliott Wave guys. We had Michael Oliver. There's also fundamental analysis.The folks at CPM Group, Jeff Christian who runs that, he was head of commodity trading for Aron Trading. They got gobbled up by Goldman Sachs and then he launched a research team more than 20 years ago. They produce the best fundamental research on gold, silver, and platinum.In fact, if you're really interested in getting to the nitty-gritty of who's buying and in what quantities, who's producing and bringing to market, he produces these books. And I encourage you to get them, read them. They're expensive, but it gives you a very clear view on the fundamentals.So on the technical side, you can look at Fibonacci retracements, you can look at moving averages, you can look at momentum indicators, you can look at channel lines, support and resistance. And all of those fit a technician's toolbox.Kevin: Okay. So that's the technicals, but on fundamentals, what you're looking at more is supply and demand and news events.David: Yeah. And on the technical side, we've found our footing. I would have been hesitant on a Saturday, Sunday, or even early Monday to have said where we're at or where we're going, because we don't know if we're going to find our feet or find our footing. And sure enough, we did. 61.8% correction for gold and silver.Kevin: That's the 618, isn't it—David: The 618.Kevin: —from Fibonacci?David: Yeah. Fibonacci was a famous mathematician, and these are things that technicians and traders are keenly aware of. You have a move, you could have a 25% decline, you could have a 38% decline, you could have a 50% decline, you could have a 68% decline, you might have a 75% decline or 100% retracement of an entire move. All of these things are normal places to correct to. The question is, what's the behavior at that point? And we have seen, this week, buyers step in at the 61.8% level.Kevin: It's like the game of KerPlunk. I don't know if you remember that when you were a kid, but KerPlunk is where the ball falls and it has different levels that it'll hit and then it'll maybe fall further, right?David: Yeah. 61.8 KerPlunk. There you go.Kevin: 61.8 KerPlunk.David: But you've got fundamentals of supply and demand, and that's a totally different way of looking at the markets. And if you ignore the fundamentals, you can be in trouble because the fundamentals can shift away from you and the whole landscape can change.On the other hand, you can pay so much attention to the fundamentals and not look at price action that you can get in trouble too. So marrying these is really important as a portfolio manager. And from a fundamental perspective, silver in particular, it persists into the sixth year of supply deficits. This is a very healthy fundamental backdrop for silver.Kevin: Yeah, because there's plenty of demand.David: And I mentioned, from a technical perspective we've already seen a 61.8% correction of the bull move. Test of the 50-day moving average bounced off at both of those levels on Monday, retested them today. And we've been moving higher since.So not to say we couldn't see more downside, but what we got in a two-day walloping was effective in taking off overbought conditions and returning measures of enthusiasm to a middle range. What often takes weeks or months, we got that cooling off in days, literally two days.Kevin: If I had to weigh out what I like better, technicals or fundamentals, I'm more of a fundamental guy. I like to see what are the facts. And so going back to Jeff Christian, because he's been in the industry forever, when you interviewed him, he went back to the 1970s. What did he have to say about this week?David: Yeah. I mean, I think what you like about fundamentals is there's some story to it.Kevin: Yeah.David: And it's not just like a Rorschach test, "Look at a picture and what does it tell you?"Kevin: That's true.David: And I think you want both, if you can get them. Jeff Christian of the CPM Group suggested over the weekend that the selloff is over this week after short term profit taking. And then you take into account Michael Oliver's spread breakout.Kevin: And that's your technician right there.David: Yeah. He reverses the math, dividing silver by the price of gold, versus what we typically do, gold divided by the price of silver. But using his metric, our first breakout was at about 1.3%. Again, take an ounce of silver divided by the price of gold. What percentage of the gold price does one ounce of silver equal? And 1.3 was the first significant breakout, and then 1.6, again, where silver equals 1.6% of the price of gold.Kevin: Where are we now?David: We ran to 2.2%.Kevin: Okay.David: And then in this correction, we retested the breakout of 1.6%.Kevin: So the technician was right.David: The Rorschach aficionado looks and says, "That's as good as you get."Kevin: That's beautiful.David: "That's as good as you get." So we're currently 1.8. So you take 89 and divide by 49.29, 1.8%. That retest is a great setup for the next leg higher. I could reference half a dozen other analysts that agree that investor allocations and indications of interest amongst their clients is growing. And again, they want to add metals to their portfolio. That inclination is on the rise. And now with a healthy pullback, they can do that without feeling like they're chasing a bullet train. It backed up and it's letting them on board.Kevin: Okay. So let's go back to ratios the way we do it, okay? Which is dividing the price of gold by an ounce of silver. Where'd we get before this correction? Didn't we get down into the low 40s?David: Yeah. Intraday, I think it was 43, maybe even 42 and a half.Kevin: Okay.David: And when we were pounding the table last week, you need to do something with a gold/silver ratio. You should be exchanging 10 to 15% of your silver for gold. The ratio is insisting that you pay attention and you take action. "Call us."Kevin: Yeah.David: Those were my words last week.Kevin: Right.David: Right. We went from, call it, 43:1 on the ratio. That's Oliver's 2.2%. He thinks we'll see 6%, which in our math would be 30:1. Just like the Dow gold ratio at 10:1. 9:1 last week, 10:1 this week. 6:1 is a maybe. 3:1, probably. 1:1, definitely. These are areas where you're taking action. Not, "Maybe we get there." But, do you take an action?Kevin: Definitely take action at 1:1.David: At 6:1, maybe you're taking action and sliding ounces to shares. At 3:1, probably. Yes. And at 1:1, definitely. So we're not done with the cycle. Either in nominal terms, if you want to price gold and silver or you want to price gold versus the stock market, we're not done with the cycle. In nominal terms, or more importantly to us, if you're looking for action items, in relative terms, as it relates to the Dow gold ratio, a significant sentiment shift in equities is likely to kick in later this year. Negative sentiment.Combine the positive sentiment in gold with negative sentiment in equities, now you're getting both the numerator and denominator both working. Thus far, we've only had one working. Gold has gone higher and it has changed considerably this ratio. But we haven't seen both numerator and denominator where the Dow is also participating.When the liquidity starts coming from the Dow, you've pointed this out, or the bond market— That is new money that the commodities market hasn't experienced yet.The experience of this last week, people think volatility is their enemy. It's not. Volatility is your friend. This is the nature of ratios. It is a measure of volatility between two assets, and it's telling you when something is overvalued or undervalued. And in the 40s, silver relative to gold is getting overvalued, which is why we shift to the undervalued asset. You're taking risk off of the table and at the same time you're able to compound ounces. But you can't compound ounces without volatility in the ratio.Kevin: Right. And you're also comparing two real things. You're never going back to cash, which is unreal in the long run.David: But I would say, you can consider going to something else. If I'm turning ounces into acres, I'm turning ounces into square feet—Kevin: Dow/gold.David: There are other reasonable asset migrations out of the metals as and when the ratio says, "Now you have a compelling value proposition."Kevin: Right.David: So combine the positive sentiment in gold with negative sentiment in equities. And, I think, there you're getting towards cycle completion. And again, for gold and silver, we've never seen a bull market end with the ratio in the 40s, 50s or 60s. So where are we at? We're mid-cycle and we just experienced a significant selloff due to profit taking, and now we're onto the next leg higher. So couple these ratio dynamics with the Bloomberg Commodity Index beginning to outperform the broader market. So again, this is hard assets and commodities, a broad cross section of it.Kevin: Real things.David: They're beginning to find their stride. And this is not the beginning of the end. This is the beginning of the beginning. Is it volatile? Yeah. But this market, in a two steps forward, one step back action, has much further to go.And I come back to this notion of, if you can help me resolve dysfunction, then I'm going to see the macro backdrop very differently. If you can help me resolve monetary policy dysfunction, fiscal policy dysfunction, international relations dysfunction, domestic political policy dysfunction, you remove the motivating factors for allocating to gold.Kevin: But the dysfunction still exists.David: Yeah. Get policymakers to wise up. Isn't it fair to say you've just reduced the need for stupidity insurance? We're simply not there yet.

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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.

Precious metals take a modest decline this week with gold dropping 1% and silver down 7%. Despite the drops this week, February still wraps up with an overall strong metals market. The overarching trend continues to point towards strong bullish momentum as metals take a moment to digest gains from January.Let’s take a look at where precious metals prices stand as of Wednesday, March 4:The price of gold is down 1% over the past week, currently sitting at $5,135.The price of silver is down about 7%, currently sitting at $83.30.Platinum is down 6%, currently sitting at $2,147. While it’s still holding above $2,000, it did have another down week this week and kind of flattening out just like silver has.Palladium is down 8%, currently sitting at $1,654.Taking a quick look at the paper markets…The S&P 500 Index is down 1%, sitting at 6,870, and continuing to show a little bit of rollover momentum.And finally, the US dollar index is up 1.25% from our recording last week, currently sitting at 98.80.

A “Good Year” in Two Months

Despite a soft final week of February, both gold and silver logged their highest monthly closes on record, with platinum and palladium also firmly positive for the month.​​

• February performance: gold +6.9%, silver +9.4%, platinum +10%, palladium +3.2%.​
• Year‑to‑date (through Feb 27): gold +21.6%, silver north of 30%, platinum +16.4%, palladium +10.4%.​

In other words, what would be a respectable full‑year return for many asset classes has already been posted in the first two months of 2026. Options and futures data confirm that prices are consolidating near record levels while volatility remains elevated, which is exactly what you’d expect after a parabolic move.​

Iran Conflict Spike Fades Fast

The Iran conflict gave us a textbook “safe‑haven spike and reversal.” Over the weekend following the latest U.S.–Israel strikes and Iranian response, gold jumped roughly 3.2% and silver about 7%, only to give back all of those gains and more within 24–48 hours.​​

• From that weekend peak, gold fell about 7.3%, ending 4.5% below its pre‑event Friday close.​
• Silver briefly tagged the mid‑$90s, then plunged 19% from the high and sat about 13% below the pre‑event close by Tuesday.​

This is consistent with long‑term history: geopolitical shocks (Iran, Gulf Wars, Middle East crises) often trigger sharp, short bursts of safe‑haven demand in gold and silver that fade once markets begin to price in outcomes rather than headlines.

The Real Drivers: Rates, Inflation, Money, and the Dollar

It’s important to note that a 61.8% Fibonacci correction in a strong uptrend is normal noise; what matters is what’s happening underneath.Interest rates Gold’s best environments are when rates are falling or expected to fall in real terms. Markets are now pricing multiple Fed cuts this year, and real yields have already come off their highs. ​​ Inflation Producer Price Index (PPI) was up 0.5% in January and about 2.9% year‑over‑year, with both PPI and CPI turning higher, hinting at a re‑acceleration risk rather than a clean “mission accomplished” on inflation. Historically, gold has responded positively when inflation data re‑heat after a lull.​​​Debt and deficits U.S. fiscal policy continues to lean on larger deficits and expanding debt, eroding confidence in fiat and supporting long‑term demand for non‑debt monetary assets like physical metals.​Dollar trend The Dollar Index (DXY) enjoyed a reactionary bounce toward 98–100 on war and risk aversion, but the broader pattern since early 2025 remains a stair‑step decline, not a new structural bull market. Short bursts of dollar strength can pressure metals intraday, but they are occurring within a longer trend that’s been friendly to gold and silver.​​

Gold’s “Kick to the Shins” Looks Like a Bullish Pause

Technically, gold has already retraced down to a 61.8% Fibonacci level off the explosive November–January rally (roughly $3,900 to $5,600), essentially “resetting” speculative excess without breaking its larger uptrend.​The market has been stair‑stepping higher in a rising channel, with the 38.2% retracement zone around $4,950–$4,960 acting as a mid‑range magnet.​​ Recent selling pressure—driven by Chinese exchange interventions and higher CME margins—pushed prices toward the lower boundary of that channel in the low $5,100s.​​From a risk‑management perspective, we see a “line in the sand” somewhere in the mid‑$4,500s to high‑$4,600s as a sensible medium‑term support band—roughly 10% below current levels.

Gold–Silver Ratio Opportunity

Silver continues to play its familiar role as gold’s more volatile cousin. After a more than 50% crash from the January blow‑off top to the early‑February low, silver has already rallied about 38% off that trough and finished February up 9.4%.Today, with the ratio around 60, we remain heavier in gold than silver — and we’re cautioning against over‑correcting into silver here on the assumption that we’re guaranteed to see another 2011‑style 30:1.

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What’s your next best move in precious metals investing? The team at McAlvany Precious Metals has a collective 75 years experience investing in the precious metals market. We are happy to speak with you about your goals on a no-obligation, complimentary consultation. Reach out to us at 800-525-9556.

Gold started recovering lost ground this week, climbing up nearly 4% and continuing its steady march back to recent highs. Rocketing back onto the scene, silver shot up nearly 16%. The metals markets signal broad strength across the board as platinum and palladium also post strong gains.Let’s take a look at where prices stand as of Wednesday, February 25:The price of gold is up about 3.8%, sitting at $5,170 since we recorded last Wednesday.The price of silver is up almost 16% at $89.15. The counterpart to gold is having a little bit of resurgence, but we'll see if that means anything.Platinum is up about 10.5% sitting at $2,323.Palladium is up 6% to $1,811.Taking a quick glance over at the paper markets…The S&P 500 is up 1.3% to 6,946 and still looking very choppy like it has over the last couple of months.The US dollar index is dead even at 97 from a week ago.

Silver’s Big Moves and Thin Inventories

Silver has been the headline metal for weeks, jumping almost 16% and “sucking all the air out of the room.”​COMEX shows around 88 million ounces of registered silver, while London’s LBMA has only about 800,000 ounces currently deliverable—roughly $72 million worth at 90 per ounce. That is shockingly small for a major hub. At the same time, legal and rule‑book escape valves (like cash settlement rather than metal) make an instant “zero silver left” moment less likely.​We see current action as a very wide trading range, with upper‑$80s to low‑$90s capping current rallies. Commitment of Traders positioning has cooled dramatically from extremely long (8–10:1 longs to shorts months ago) to closer to 1.5–2:1 recently, which is more “sitting on hands” than “stampede.” In that context, a pullback from the top of the range into the mid‑zone is normal.​

CME “Technical Difficulties”

We’ve seen repeated “technical difficulties” at the CME Group just as silver pressed toward potential breakout levels.​In late 2025, an air‑conditioning “issue” in the server room triggered a halt to protect data. More recently, as silver pushed into the low‑$90s and approached a prior bounce high near 92, CME again halted trading and ultimately cancelled all trades for the day, citing technical problems.​This comes on top of other visible interventions: Shanghai suspending silver futures when prices screamed toward $120, and CME raising margin requirements in late January to knock back leveraged longs. These actions match a long‑running pattern we’ve seen before—paper venues attempting to manage volatility in markets where physical demand is increasingly in the driver’s seat.​The lesson is not to chase conspiracies, but to recognize that market structure and rule changes are now part of the risk set. If your wealth plan assumes frictionless, transparent paper markets, you are using an outdated model.​

Silver as a Strategic Mineral

The current administration is grouping silver with other strategic minerals and engaging government agencies and private industry in building a strategic stockpile and potential price supports. The intent is two‑fold:​

• Put a floor under prices so miners can keep exploring and producing, and
• Explicitly allow price inflation in these commodities to attract capital by signaling better future profitability.​

Combined with ongoing structural deficits (industrial and investment demand outstripping mine supply), official recognition and support tilt the long‑term probability structure in silver’s favor.In other words, silver is not just a “poor man’s gold”; it is increasingly a policy‑critical input in energy, technology, and defense. That makes a long‑term physical allocation rational, even if the path is volatile.

Quiet, Reliable Gold

While silver grabs headlines, gold continues to do what serious wealth‑preservation assets do: grind higher in a disciplined trend.​From around $3,300 in August 2025 to roughly $5,170 today, gold has risen about 57%, yet it has done so in a rising channel with repeated “check‑ins” to its trendline support. Sharp spikes higher have consistently mean‑reverted back into the channel rather than collapsing through it.​Even after January’s sharp correction, gold is posting higher highs and higher lows as it grinds back toward its late‑January peak. This complements the broader story: from 2020–2025 gold and silver were already among the best‑performing core assets in diversified portfolios, even before the 2025–26 explosion.Silver is the fun ride; gold is the core holding. Use silver’s big swings to accumulate more gold over time, but let gold remain the anchor.

Gold–Silver Ratio Trade Opportunities

The gold to silver ratio has collapsed from over 100:1 last year to about 58:1 at the time of this recording, after intraday dives into the mid‑40s during the most recent silver surge. Historically, those swings are cyclical: the ratio tends to overshoot in both directions, with probable future trips back toward 75:1 and, on spikes, toward the low‑40s.​We have been actively swapping client silver into gold in IRAs and other tax‑advantaged accounts as the ratio tightened into the low‑50s, “harvesting” the outsized silver gains of 2025–26 into more total gold ounces.Our rule of thumb for swaps: by the time you’re near 40:1, you should be moving meaningful chunks of silver into gold. You don’t need to catch the precise bottom in the ratio; you need a process that gradually shifts you from the currently over‑performing metal into the more stable store of value.

Add More Gold Ounces

Is it time for a ratio trade in your precious metals portfolio? With strategic ratio trades, you’re not just betting on higher prices; you’re using the relationship between metals to systematically grow ounces—especially inside IRAs where gains are sheltered.The team at McAlvany is here to help you determine the best time for your next ratio trade. We have a collective 75 years experience investing in the precious metals market. We are happy to speak with you about your goals on a no-obligation, complimentary consultation. Reach out to us at 800-525-9556.

Gold and silver took a much‑needed break this week. Beneath the quieter price action, the big themes haven’t changed at all: volatility in silver, strong underlying demand for gold, shifting macro and geopolitical risk, and increasingly fragile alternatives in stocks and crypto.​Let’s take a look at where prices stand as of Wednesday, February 18:The price of gold is down about 1.7% sitting at $4,985 as of our recording.Silver is down about 8% this week, sitting at $77.20. Gold’s sister metal is right in the middle of its trading range.Platinum is down about 1.5% sitting at $2068 — and still holding above that $2000 mark.Meanwhile, palladium is actually up 1%, sitting at $1,728.Looking over at the paper markets, which all seem to be rolling over except for the Dow transports…The S&P 500 is down about 1% to 6,880.The US dollar index is up 0.8%, sitting at $97.70.This is the sort of “rest phase” you actually want: prices cooling, moving averages catching up, and the market digesting the massive moves from late 2025 and early 2026 rather than blowing off into an unhealthy spike.​

China’s Role in Silver’s Wide Trading Range

Silver’s headline 8% weekly drop looks dramatic, but on today’s chart it’s the “new normal.”​ Recent price action has carved out an enormous range, with $67 on the low side and $90–$91 on the high side, and a more realistic working band around $70–$86.​Technically, a sustained break above the low‑$80s could set up a new stair‑step higher‑high/higher‑low pattern, while a slide toward the low‑$60s would signal a downside breakout from the current range.​Much of the demand that drove silver higher came from China, yet markets are now in the middle of Chinese New Year, which temporarily mutes physical buying.​ The recent air pocket in silver was amplified when Chinese authorities abruptly shut down speculative trading, followed by CME margin changes—events that yanked “every ship” in the market first one direction, then the other.​ Even priced in yuan, silver saw a brutal initial drop of about 41%, later recovering part of that move but still sitting roughly 30% below its peak before stabilizing in the mid‑range.​The key takeaway is to expect continued volatility in silver until the market chooses a direction and new momentum builds—likely catalyzed by China reopening post‑holiday and policy decisions on speculative flows.

Geopolitics and the Case for a Gold “Plateau”

Gold’s resilience near record levels is increasingly tied to geopolitics rather than just interest rates and the dollar.​The U.S. continues to build a naval and military “armada” around Iran. Any misstep that leads to open conflict would almost certainly fuel further strength in gold, as crude oil has already signaled by “screaming” higher.​At the same time, we’re hoping to see a consolidation phase: a multi‑month plateau where both gold and silver trade sideways, moving averages catch up, and a new base is built for the next leg higher, potentially into the fall.​ Because the ideal environment for long‑term metals buyers is not a parabolic blow‑off, but a grinding, “healthy” market that alternates effort with rest.This lets you accumulate ounces and prepare for the next geopolitical or monetary shock — which is bound to happen.

Policy, Debt, and Why Gold Remains Core

The U.S. spends more than it takes in every year and covers the gap with borrowing and currency creation, which structurally pushes the price of “everything real” higher over time.Even under a “restrictive” Fed, the U.S. has added roughly 2 trillion to the national debt recently, and the likely addition of a more growth‑friendly Fed governor supportive of the current administration’s push for a weaker dollar suggests larger deficits and higher long‑term inflation.Investor appetite for Treasurys appears to be waning compared with a decade ago, raising the odds that the Fed will have to absorb more issuance onto its own balance sheet in the next cycle.Within that backdrop, gold remains positioned as:

• An insurance against leveraged real estate, aggressive stock portfolios, and fiscal experimentation.
• A legacy asset—a box of real, tangible value you can hand to children and grandchildren without relying on any counterparty.​
• A core one‑third of a “triangle” portfolio (growth assets, cash/fixed income, and physical metals) rather than a small, speculative side bet.

While tactical ratio trades are useful “sizzle,” the “steak” is long‑term wealth preservation in a world where the currency is managed for political goals, not stability.

Cracks in Stocks and Crypto

Tech‑heavy indices like the Nasdaq are starting to weaken after years of AI‑ and crypto‑driven hype, even as Dow Transports and Industrials surge—suggesting sector rotation rather than broad market strength.​This divergence, combined with the fact that gold has more than quadrupled since its 2015 lows while equities show topping behavior, raises concern that we may be closer to a major equity adjustment than many assume.​Bitcoin and Ethereum, meanwhile, appear to have topped for now, with prices rolling over and momentum clearly fading after their latest manic run.Crypto may be a useful platform for a small set of global users (e.g., the frequent traveler who converts crypto into local currency on demand), but it has never functioned as a reliable, stable currency replacement.​ Gold, by contrast, is not a speculative technology play; it is an unleveraged, physical, Tier‑1 reserve asset that has navigated every monetary regime in modern history.This reinforces the big picture: use periods of calm or pullback in gold and silver to quietly add ounces, keep an eye on silver’s wide trading band and the gold–silver ratio for future swaps, and remember that your primary objective is not to out‑guess every headline—but to own real money through a cycle where debt, deficits, and geopolitical risk continue to rise.

Your Next Precious Metals Move

Need advice on your best next move for your precious metals portfolio? The team at McAlvany Precious Metals has a collective 75 years experience investing in the precious metals market. We are happy to speak with you about your goals on a no-obligation, complimentary consultation. Reach out to us at 800-525-9556.

Gold and silver investors just watched one of the wildest starts to a year in recent memory. We’re at the beginning of a whole new era for physical gold. In this week’s Golden Rule Radio, we break down the recent price movements in gold and silver and explore the broader market dynamics driving these shifts. We take a closer look at what’s been impacting silver over the past few weeks, the volatility we’ve seen, and why the bigger-picture momentum remains intact. We also discuss how current economic conditions and market sentiment are shaping opportunities in the precious metals space.Let’s take a look at where prices stand as of Wednesday, February 11:The price of gold is up 4% since our recording last Wednesday, currently sitting at $5,086. It is inching its way back up to the top end of its trading range.The price of silver is up 9.5% from our last recording, sitting at $84.30. And while it has taken a dramatic tumble from its recent all-time high, the price was only $30 one year ago.Platinum is up 4.5%, sitting at $2,110 and showing a little bit of recovery.Platinum is up about 2% at $1,713.Looking over at the paper markets…The S&P 500 is up about 0.5% from a week earlier. It had two moves up and down 3% intraweek.The US Dollar Index is down 1%, currently sitting at 96.9 as of this recording.

Silver’s Engineered Crash vs. Real Demand

Silver just went from a parabolic surge to what feels like a “ball bouncing down the stairs,” with a massive drawdown driven less by organic selling and more by policy and margin mechanics.From early November, silver ran from roughly the high $40s to just over $121 before China abruptly halted trading to “kill the speculators,” followed immediately by New York–open margin calls and yet another CME margin hike.The technical result was a very deep 78.6% Fibonacci retracement from that November low to the January 29th high, with price slicing through the 20‑day and 50‑day moving averages and tagging the 100‑day in short order.​ The key takeaway is that this was a forced shakeout in a market that was running too hot, not a collapse in underlying demand for silver itself.If you own physical silver outright, this kind of washout is painful on the screen but structurally bullish: it tends to clear out weak hands, reset positioning, and eventually create better entry points for long‑term buyers who care about ounces, not daily ticks.​

China’s Backwardation vs. US Contango: why location matters

In China, silver inventories have collapsed from around 5,000 tons in the mid‑2020s to well under 200–300 tons today, taking stocks to multi‑decade lows. The result is classic backwardation: spot (immediate delivery) trades above futures, and buyers are paying an extra 9.5%–10% on top of the “official” price to get metal in hand.​But in the US, inventories are flush. Dealers report ample Silver Eagles, 90% junk bags, and bars, and the futures curve sits in contango, with futures above spot. That tells you two critical things:​

• Tightness is real, but it is regional: China and other strategic buyers are scrambling for deliverable metal, while US retail shelves are still relatively well stocked.​
• The three “markets” for silver—spot benchmarks, futures contracts, and actual deliverable product—can and do decouple under stress.​

The current comfort in US inventory is a grace period, not a guarantee. If global supply tightens further or a small additional slice of US investors rushes into silver, that apparent abundance can turn into scarcity very quickly.​

Gold’s Quiet Strength Remains the Anchor

While silver has been the drama queen, gold is behaving exactly how you want your core monetary asset to behave: steady, resilient, and structurally bid.Gold is only about 9% off its recent high, having climbed from roughly $3,900 in November to around $5,086 before a modest correction to a 61.8% retracement and a quick bounce off the 50‑day moving average.Positioning data backs this up. In the Commitment of Traders report, the two main investment categories—managed money and other reportables such as family offices and private investors—are still roughly 4‑to‑1 long gold, a strong vote of confidence from professional capital. Silver, by contrast, has seen speculative longs collapse from 10–12‑to‑1 long down to about 1.5‑to‑1 in managed money, confirming that the big washout has indeed flushed the hot money from that market.​For portfolio construction, you should treat gold as your foundation and silver as your torque. Gold preserves purchasing power across regime changes and monetary experiments; silver tactically adds volatility and creates opportunities for ratio trades that ultimately grow your gold stack over time.​

The East–West Monetary Shift and the Coming “Digital Gold” Era

We are early in a generational transition in the global monetary order, and gold sits at the center of it. China and other BRICS‑aligned nations have spent the last decade deliberately diversifying away from the US dollar, building out gold depositories, and encouraging companies and sovereigns to use gold as high‑quality collateral in cross‑border trade. The goal is straightforward: challenge US dollar dominance by backing trade with a neutral asset that cannot be printed or sanctioned at will.​What’s emerging is an architecture where countries can warehouse metal in Chinese (or other) depositories and tokenize it into a form of “crypto‑like” settlement: you don’t sell your gold, you pledge it and transact against it in a digital system. In effect, this is an attempt to reinvent a gold settlement layer on top of a digital payments stack—a cycle the West has run before: gold, to paper claims on gold, to pure fiat, and now likely back toward some version of digitized gold backing.​For US‑based investors, this shift has two major implications:

• Gold is increasingly the neutral reserve asset of choice in a fragmented, distrustful world; that supports a structural bid under the price regardless of short‑term Fed or CPI headlines.​
• Your decision to hold physical metal today is not just about domestic inflation or Fed policy; it is about aligning your savings with the asset that adversarial states themselves choose when trust breaks down.​

In that environment, owning liquid, easily verifiable physical gold in a mix of personal custody and vaulted/IRA structures is a way of putting your balance sheet on the same side of the trade as central banks, not just as local speculators.​

Claim Your Complimentary Consult

Not sure what your next move should be in precious metals? The team at McAlvany is happy to discuss your personal situation and develop a strategy based on your goals. Our team has a collective 75 years experience investing in the precious metals market. We are happy to speak with you about your goals on a no-obligation, complimentary consultation. Reach out to us at 800-525-9556.

Gold’s violent late‑January selloff looks scary on a price chart, but the bull market is intact. Smart money is still accumulating, and this pullback is a rare chance to upgrade and add ounces on sale.​Let’s take a look at where precious metals stand as of Wednesday, February 4:The price of gold is down 11%, sitting at $4,960. The price of silver is down 25%, currently sitting at $87.90.Platinum is down 20%, sitting at $2,190.And palladium is down 17% and sitting at $1,758.Looking over at the paper markets…The S&P 500 is down about 1.5%, currently sitting at 6,882.And the US dollar index rose up 1.6% to 97.67 on the dollar index.

A “Crash” Inside a Massive Uptrend

Gold hit a new all‑time high around $5,600 on January 29, then dropped roughly $1,200 in two trading days before bouncing sharply.​ From peak to trough, gold fell about 21–22%, but as of the podcast date it had already rallied back roughly 16% off the low, leaving it “only” about 11% down on the week.​Silver’s move was even more dramatic: from about 47 in early November to roughly 121 in three months (a near tripling), then down ~25% on the week, yet still sitting in the high‑80s to low‑90s and remaining the best‑performing major asset in the U.S. for 2026 year‑to‑date.​In other words, this was not gold or silver “going to zero”; it was a sharp correction after an extraordinary melt‑up layered on top of an already huge multi‑year bull market in metals.​

What Actually Triggered The Selloff?

We see two key catalysts that kicked off a classic “snowball” move:

• China halted trading in five silver and commodity funds “to limit risk amid volatility” and “maintain the stability of the capital markets,” effectively stomping on the market at the peak.​
• The next day, the CME Group raised silver margin requirements for the fourth time, forcing out leveraged longs and triggering margin calls and stop‑loss cascades.​

This combination delivered a waterfall move: once forced selling begins, each layer of margin calls begets more selling, and the market overshoots on the downside before stabilizing.​The key takeaway is that the crash was mechanically driven by leverage and policy moves, not by a fundamental collapse in monetary demand for metals.​

Where The Charts Say We Are Now

Even if you don’t trade off charts, it helps to know what we’re watching:

• Silver’s three‑month run from $47 to $121 was followed by a textbook corrective drop right into a major support cluster: the 50‑day/100‑day moving average zone and a 61.8% Fibonacci retracement area around the mid‑70s.​
• From there, silver bounced and now appears to be settling into a trading range roughly between the 61.8% and 38.2% retracement levels, which we peg around about 75–93.​
• On a larger timeframe, even an extreme washout into the low‑60s would still leave silver investors with very large gains from the 40s; the “damage” is mainly to recent late‑entry speculators.​
• Gold’s medium‑term retracement has been far tamer than silver’s: from an August low near $3,300 up to $5,600 (about +70%), with the pullback only briefly touching roughly the 50% retracement level before stabilizing near shorter‑term moving averages.​

Practically speaking, this looks like a deep, healthy correction after a euphoric spike, not the end of the bull market. If you’re looking for good entry points, we see the current band (roughly $75–$85 on silver and mid‑$4,000s on gold) as an attractive buy‑the‑dip zone.​

Where We Are in The Bull Market Cycle

Over the last decade, most of the marginal demand has come from “gold people buying gold”: central banks (notably China), institutions, and long‑term allocators quietly accumulating, not the general public flooding in.You can see this major bull market breaking down into three phases:

• Consolidation — From 2015–2018 bear bottom and basing
• Growth — our current phase, where gold has effectively gone 5x from its 2015 lows and silver even more
• Mania — a future phase where mainstream investors, pushed by stress elsewhere—equities, bonds, rates, geopolitics—finally chase metals.

We are essential at “the end of the beginning,” not the end of the cycle. Most buyers are still the early, informed crowd, and the event that forces the public into metals en masse has not yet occurred.​What this means for you: volatility like this is part of the growth phase, and it tends to precede—not follow—the eventual public stampede.

Your Next Move

So how should you react to this move?As we always recommend, stay on course. Keep accumulating on a schedule, treating it as disciplined savings rather than a trading game (a form of dollar‑cost averaging).View pullbacks as inventory opportunities, not existential threats. Many of us have added to our own positions into the decline, including upgrading into semi‑numismatics (e.g., $5 Indians, Morgan dollars) while spot is discounted.Let ratios and structure guide swaps. The gold–silver ratio fell to about 46:1 before snapping back above the mid‑50s after silver’s harder fall, temporarily taking some accounts out of “ideal” ratio‑trade territory and reminding investors to “take some wins” instead of holding out for a perfect 15:1 fantasy print.​

Here to Help

The team at McAlvany Precious Metals has a collective 75 years experience investing in the precious metals market. We are happy to speak with you about your goals on a no-obligation, complimentary consultation. Reach out to us at 800-525-9556.