Podcast: Play in new window
- Silver 56% Up, Gold 18% Month To Date
- When To Start Swapping Silver To Gold
- A “Run” On Japanese Bonds Is Cascading To The Rest Of The World
“You can see the importance of defense. And when we look at the perspective triangle, we categorize gold and silver not as a high growth asset, even though it was one of the best performing assets—and silver—last year. And the fact that it’s moving, the fact that it’s performing the way it is, it’s the signal that matters. What is going on? The barometer is telling you the storm is here and people are saying, ‘No, I’m fine.’ “ —David McAlvany
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Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany.
Well, David, yesterday we did more trades as a company than we’ve done in what, 53 years?
David: In a single day. Yeah. It was pretty high volume.
Kevin: Yeah, so start with gold.
David: Leading with gold and silver because why not? Risk hedging. This is really what we’re seeing in the institutional market and with central banks. Risk hedging has been a dominant theme for 12 to 24 months, 18 to 24 months. And the audience, which is sensitive to various risks—it could be geopolitical risk, fiscal, many others—that audience has been expanding from the high-level institutional awareness now to the man on the street, both Wall Street and Main Street, but the man on the street.
Kevin: Right. Yeah. Well, Bill King calls them the army ants, and so the man on the street may be starting to wake up. I don’t know fully. Let’s look at the returns right now. We don’t buy metals necessarily for the rate of return, but it’s been very high and very quick here this year.
David: Yeah. It certainly has not created a fence that they’ve gone higher. So we don’t buy them for that.
Kevin: But we don’t mind it.
David: We don’t scold them for that either.
Kevin: We don’t mind it.
David: 2025 returns were impressive enough to warrant what we would consider a cooling off period, some sort of a correction. Yet in the first month of the new year, silver has streaked past 56%.
Kevin: Wow.
David: That’s year to date—month to date, which is year to date. And of course, gold is up about 18%. So great returns for a 12-month timeframe. Of course, that’s only packed into the first 28 days, not 12 months. And gold has just outperformed the S&P 500’s full year 2025 returns with dividends included, and again, that’s in the first 28 days of the new year.
And I’ve said this repeatedly, careful and deliberate central bank— Well, add to central banks very deep pocketed private capital. They’ve front-run events, and they have been out in front of this. They’ve front-run events that are soon to be in the headlines. And ultimately, those headlines will drive investor capital towards the metals as the headlines capture attention from the generalist investor and your general Wall Street asset allocator. So the metals are pricey, but not anywhere close to over-owned.
Kevin: And I think that’s an important thing to stress. Metals are pricey right now. Morgan said it this morning in our meeting. He said, “What’s going on in the world has not yet been marked to market. But what’s going on with the general investor, that hasn’t been marked to market either. The general investor’s still not in the game.”
David: Yeah and it really is what’s going on in the world that is being front-run. This is your big money players, your patient capital that sees festering issues, long-fuse issues, and they’re not interested in being there at the moment the bomb goes off. They see a long fuse, they take action. They don’t need immediate returns, they don’t need immediate gratification, and they wait, and they wait, and they wait, and things play out.
Kevin: You call that strong hands.
David: Very strong hands.
Kevin: These are strong hands. So let’s talk about the dollars, though, because percentages mean not as much as dollars to people.
David: Well, just to recap for January, we’re up $758, that’s just in the gold price since Jan 1. Silver from $71 to an intraday high of 117, trading a few dollars below that at present. A $46 per ounce year-to-date gain.
Kevin: Wow.
David: Year-to-date gain, right?
Kevin: That’s in silver.
David: It’s breathtaking, particularly for the ounce accumulator with cost basis, which they’ve set over the past two decades. And so compounded returns are powerful. You begin to see, you wait, you wait, you wait. And if you were to look back and look at your compound annual returns from those low-cost-basis ounces, wow. Wow, is I think what you can say. And we shouldn’t forget platinum. It’s up 24% year to date off its highs from a week ago where it had punched up to 40% year-to-date gains.
Kevin: Platinum can sometimes be the forgotten sister. Platinum and palladium when it’s appropriate, but you’re right. But rate of change. I remember talking to you a lot about when curves start to go parabolic. The rate of change is really what’s, I’ll be honest with you, disturbing to me right now.
David: I get nervous when the rate of change is between 100 and 150% per year. And I think everyone should be. It’s not the level of the metals that is surprising, but it’s the speed of the movement. What this is a reminder of is how limited in scale these markets truly are. Supply is inelastic, and when demand increases, prices adjust dramatically. So speculation of where we are in a full cycle move comes from, in my view, the buying constituents. Who’s in the market now.
First, in a bull market, you’ve got the mavericks, you’ve got the speculators, then the institutions and Wall Street firms, and finally you have the masses. So three phases of a bull market, early adopters, mid-cycle enthusiasts, and late entrants. And I think we are phase shifting from the mid-cycle enthusiast, largely the central bank reserve managers, including a few Wall Street firms, but they’re reading the tea leaves. They’re anticipating change in the debt markets and the currency markets. And then we’re moving now, if I were to say, what is 2026 to 2028? I think this is the reactive crowd that is catching up to realities as they become fully baked.
Kevin: Well, and you brought that out last year. You said the thing that we’re still looking for is increased volume in ETFs and increased buying of gold mining shares. And we’ve pointed out over the last couple of months that that has happened.
David: Right, but early stages of that happening. I mean, we’re talking about a capital reallocation process and cycle that takes time. The bias is still toward traditional assets. I spoke with a prospective client yesterday, and sure enough, just a few months ago with half of their resources, 60/40 portfolio.
Kevin: Stocks and bonds.
David: And I thought that’s really interesting that given the background dynamics, given the macro factors that we consider on a routine basis, that’s a dangerous portfolio. You can lose on both sides of the equation, both in fixed income and in equities. And it just speaks to the volumes of brokers who are still playing by the old rules.
Kevin: Well, and even the Morgan Stanley brokers, Morgan Stanley came out and said it was 60/20/20, and 20 was gold. And I know that there were Morgan Stanley brokers that said, “Oh, no, we still don’t believe that.”
David: All the guys that I work with with one particular foundation, they’re like, well, that’s what they talk about, but—
Kevin: They don’t really mean it.
David: —we’re not sure that that’s very realistic, maybe 5%. It was fascinating to see. Just because somebody at the top of a firm says, “This is the direction we’re going,” there’s an adoption cycle there too. There’s disbelief, in part because you favor what you know. You favor what’s familiar, and metals frankly have not been in the investor lexicon, Wall Street investor lexicon, for many decades.
Kevin: Well, you wrote a white paper about this last year. You were saying, basically, it’s going to take fear, right?
David: Yeah. So I wrote the white paper in early 2025 discussing what the gold price increase was signaling. Again, you’ve got market noise, you’ve got clear signals, and one of the best signals in recent years has been the gold price. What I said then was that gold set a new all-time high in March of 2025 at $3,145, finishing the first quarter up 19%.
Kevin: That seems like a long time ago, doesn’t it? $3,125?
David: I think there’s plenty of people who would love to buy it at 3,145. So in fact, gold set 40 new all time highs in 2024, closing out the year with a 25 and a half percent return. Gold is unlike many other assets in that the yellow metal serves as a barometer for stress, for uncertainty, and future financial market volatility. While other assets provide information about the sphere they exist in, gold provides information about a broader scope of interests, which include the global financial markets, capital flows, and trade settlement, domestic public policy, international relations, currency stability, and much more. It went on and concluded in that paper, we are at a crossroads. Ignoring the message from the gold market would be a mistake.
Kevin: Well, and the message seems to be, too, Dave, we keep hearing the term dedolarization, and that is really rapidly happening. But the truth of the matter is, every fiat currency out there is being called into question. So wouldn’t you say this is a currency issue?
David: Yeah, and it was fascinating. Ray Dalio at the World Economic Forum last week said, “This is not dedolarization. This is defiatization.”
Kevin: There you go.
David: Which I think that audience knows what he means, but many people don’t even know what fiat is. What we see unfolding is a shift in perception and judgment of the soundness of fiat currency, and of course the debt markets as well, which have exploded in scale to what the Institute for International Finance tallies to $347 trillion.
Kevin: Wow.
David: That’s global debt. That’s a lot of IOUs. That’s a lot of claims to underlying assets. Now, 346 is really interesting, but global GDP comes in at about 117 trillion. And if you let that sink in, the math no longer is sustainable. You don’t have a large enough engine.
Kevin: Right. You’re not producing enough to keep up with the debt.
David: That’s right. And particularly if you have any pressure on interest rates to the upside, because you’ve got this mountain of debt, which some portion of it every year has to be refinanced, and it’s going to be at higher numbers. That spells fiscal pressure for corporations, households, governments on a global basis. This is why this is not the 1970s. This is not the last bull market ending in 2011. The dynamics post-COVID are just a magnification of what was already in play.
Kevin: We were still able to borrow our way out. I think we’re losing that ability, don’t you?
David: Yeah. We have to have rates close to zero to avoid a debt crisis. And if rates are not contained, then central banks globally have a choice.
Kevin: Inflate. Inflate or die.
David: Yeah. So these numbers have been in plain sight, but for the average investor, there’s been no reason, no catalyst for concern. And investors have essentially ignored the facts in favor of infinite growth fictions. So that’s in the form of AI, that’s in form of revolutionary technologies which change the game and mean the rules of finance no longer apply.
Kevin: But your white paper said that the signal is gold right now.
David: The signal is gold.
Kevin: Yeah.
David: The signal is gold. Precious metals continue to send an important signal. I include all of them in that. Ignoring it will cost business capital allocators and investors vast sums of money.
Kevin: So if I were to picture on this table a stack of cash right now, let’s say $5,000 roughly, or one little bitty gold coin that’s about the size of a 50-cent piece. Right now what you’re saying is at some point people are going to go, “No, I don’t want this pile of cash. I want that little bitty gold coin.”
David: So they make their money go away, and they take the gold—
Kevin: That’s right.
David: —instead. So Gresham’s law is a monetary principle that states bad money drives out good money.
Kevin: And that’s the stack of cash. Bad money.
David: This means that when one form of money is viewed as inferior, it is exchanged for the superior form. The good money disappears from circulation. When currency stability concerns emerge, savers seek alternatives, which in essence are there to preserve their purchasing power.
So we’ve had different systems. We had the old bimetallist system. And you could even see then where gold would disappear and silver would be present because gold was even superior to silver under the bimetallist system. Under the fiat system—and again, this is a system of no tangible backing for paper currency—capital flows to a superior fiat. We were in Argentina back in 2004.
Kevin: 2014.
David: Oh, gosh. 2014.
Kevin: Yeah. With Pete and Rob, we had a great trip.
David: Yeah, I remember the four.
Kevin: There was inflation at that point.
David: So an example from Argentina is that savers keep safe deposit boxes full of US dollar cash. They don’t want Argentinian pesos. They don’t want them. So if inflation thresholds exceed a tolerable level, capital moves to safety.
On a relative basis, US dollar cash has been viewed as better money than Argentine pesos. And you fast-forward from the old period of bimetallism to 1971 to 1976, Nixon closing the gold window and the end of the Bretton Woods agreement. Only in the present era have fiat currencies lost a stable reference to value against. What are they worth? Well, a dollar is worth X number of euros. Euros are worth X number of yen, but nothing is anchored. So currencies float and have value relative to others. There’s constant shifting in terms of value. And so we come back to, really, what is gold. Gold is the king of currencies.
Kevin: I picture it like a yardstick that’s not made out of rubber. If you had a rubber yardstick, you could stretch it when you need it to, what have you. But gold is a solid yardstick. And to even call it a currency— It is a currency, which means we shouldn’t call the fiat currency because it’s really not. Right?
David: Paper promises to pay.
Kevin: But we’ve got thousands of years, right? We’ve got thousands of years of history. It’s amazing how people still don’t see it.
David: Yeah. Since the Lydian Empire gold has been sort of the enduring reference point. Gold demand in the present period, it tends to rise in value when devaluation concerns are increasing, when you have competitive devaluations between trade partners. And that is a real threat. That is a present tense real threat. Even though gold is no longer a part of our monetary system, it serves as a signal for growing concerns that bad money is proliferating, and it takes on the historical good money role.
Kevin: Right. Well, and I’m so often asked right now, Dave, so are you: How long is this going to last? But what they’re really asking is how long is this price increase going to last? The question is a longer-term question. How long will gold preserve wealth? That’s really the question that should be answered, but the price is moving so rapidly right now. It’s easy to lose that focus.
David: Well, capital is moving to safety, and precious metals cannot have the vast quantities of fiat currencies squeeze into them without a violent price adjustment higher. That’s precisely what is happening.
Kevin: Right.
David: How long does it continue? Well, the question is one of global dysfunction. It’s one of policy dysfunction. I mean, it can be categorized in many ways. Monetary policy, fiscal policy, international relations, domestic political policy objectives. These are the things that define the dysfunction of the world we live in, and also are the catalyst for capital moving to safety.
Kevin: Morgan was reporting on what was said at Davos last week about globalization. And the way Morgan summarized it was the jig is up. Okay. At this point, this dollar system, this Bretton Woods system that we’ve learned to live with since 1944, it’s going to change.
David: Well, again, going back to Ray Dalio’s comments at the WEF, he was chiding the audience, “Stop talking about the end of the global order. It’s not ending. It ended.”
Kevin: It’s already happened.
David: It’s already happened. So to some degree we are seeing a version of a reset and a reorientation to real things. So not only is gold shifting back towards its historic currency role, it’s also being sought as an asset class that’s less fragile in the context of bloated debt obligations. And that’s what we saw from Morgan Stanley’s chief investment officer. When he’s suggesting that you cut your bond position in half, that was the old anti-fragile asset. No, you should cut that in half and introduce 20% [gold] into your portfolio.
Kevin: What a radical statement.
David: 60/20/20 instead of 60/40. We have yet to see a gathering of investors seeking safe haven, the safe haven qualities of gold from equity market volatility. Equity markets are pretty strong. I mean, not priced in gold. Not priced in gold at all. In fact, the Dow gold ratio has slipped to single digits.
Kevin: Isn’t that amazing?
David: Keep that in mind as you look at your portfolio and proudly squawk about the S&P’s returns, the NASDAQ’s returns, last year. In real money terms, you lost your shirt.
So there will be successive waves of interest in the metals as new uncertainties emerge and as new headlines underscore the frailties already present within the financial system. It’s hard to fathom that these are the early stages of a move in metals, particularly for someone who’s owned it for a long time. And we have plenty of clients who are taking profits, and that’s fine, but it’s hard to fathom that these are early stages, but these are indeed the early stages of a broader adoption cycle of metals within the everyman’s asset allocation.
Kevin: So you say every man. Okay. And if you get into a group, you and I are both members of groups outside of our little gold world here. And if you get in a crowd of people, whether it’s at your church or whether it’s at school, and just ask them, what do you think about gold? What do you think about the stock market? What do you think about $38 trillion in debt? What’s your thought?
David: Yeah. I would ask those questions if you’re curious. How far along are we in the cycle? Who do you know that even knows what fiat currencies are? Think about that.
Kevin: Well, the people we work with do.
David: Well, sure. Yeah.
Kevin: But outside of this place, no.
David: It’s a very small circle.
Kevin: Yeah.
David: And so for Ray Dalio, he runs the largest hedge fund in the world. Of course, hedge fund managers know the difference between fiat and a metal backed currency. They know the history of currencies. They know the history of the bond markets, the stock markets. They make money with money because they have an edge, and the edge is informational. And this is information that we already have, but the vast majority of people are not even aware of what a fiat currency is. Who do you know that is cognizant of corporate debt and government debt being near or past capacity limits? This just isn’t what people do. People pick up the kids, they take them to dance, they do this, they run around and get ready for dinner. I mean, life is full of stuff that has nothing to do with what we do on a daily basis.
Who do you know that tracks the extreme overvaluation in equities, market cap to GDP in excess of 226%? Who do you know that acts in an anticipatory manner rather than reactively? These are folks who will buy gold at some price, probably between here and $10,000 an ounce, and it’s going to be a reaction to something. They were not anticipating anything because they were just going about their lives as if everything was fine. And as long as they get a statement and they’ve made progress, if it’s 5% or 15%, whatever the percentage gain is, they’re happy.
Kevin: Yeah. But these are the same people, Dave, that if you say, “Do you have a 401k?” They’ll say, “Oh yeah. Yeah. Yeah.” What’s in it?
David: I don’t know.
Kevin: I don’t know, but I’m going to retire in 2032 and they told me—
David: Yeah. They target date funds. It’s perfectly matched and it’s going to perform— I’ll be able to retire in 2030, whatever it is. Who do you know that has already hit the Morgan Stanley CIO’s recommendation of a 20% allocation to gold? Who in your world has 20% of their assets in gold already?
Kevin: Well, okay, so pretend like you’re in a cocktail party with a bunch of stockbrokers from Morgan Stanley. How many of those guys have 20% of their portfolio or their client’s portfolio—
David: One in a hundred, maybe one in a thousand.
Kevin: Okay. But let’s be clear, you are not saying put 100% of your money in gold. I mean, there is an allocation. We’ve always talked about the triangle, right? And preservation, growth, and then on the right side of the triangle, cash. And so what is the strategy right now as gold rises, yet we think it’s going to rise more?
David: Yeah. I mean, we got to watch two great games on Sunday. Well, one was reasonably great and the other one was absolutely pathetic. Sorry, I’m—
Kevin: In the snow.
David: I’m a recovering Broncos fan, particularly after the game. But you can see the importance of defense. And when we look at the perspective triangle, we categorize gold and silver not as a high growth asset, even though it was one of the best performing assets—and silver—last year. It’s an insurance play. And the fact that it’s moving, the fact that it’s performing the way it is, it’s the signal that matters.
What is going on? The barometer is telling you the storm is here, and people are saying, “No, I’m fine.” So let me digress for a moment to strategy. I think for early adopters to the precious metals market, you have the luxury of taking gains. There’s a justification for someone that started with a healthy percentage allocation to precious metals to now take some money off the table as that percentage of your portfolio has swelled to very high allocations.
Kevin: Right.
David: So you started with a third, which is what we recommend in that perspective triangle. And it may be 50, 60, 70, it may be 80% of your assets today. Is it reasonable to trim that back? I think so. If you have followed our advice and structured a portfolio with a broad array of metals, you also have the option, not necessarily of trimming it back, but of swapping from one to the other. In this case, from silver to gold.
Kevin: Well, and see, that’s the thing. When you take money off the table, you don’t necessarily want to put it back into fiat currency, which is the thing that’s failing. You take money off the table to buy land for the kids. You take money off the table possibly to buy gold with your silver after this move. And vice versa, Dave, a lot of times we’ll go from gold to silver when the time is right, but what are you taking it off the table into if you’re reallocating, right?
David: That’s a great question. I mean, we’re doing record volumes of business, not because of new clients storming the phone lines, but because at 50 to one, at 40 to one, at 35 to one, at 30 to one-
Kevin: You’re talking about the gold to silver ratio.
David: Yeah. Our clients are compounding the ounces they own via trade from silver to gold, increasing portfolio horsepower by moving to relatively undervalued gold from silver.
Kevin: Increasing ounces. Yeah.
David: Which is more and more overvalued. Silver is more and more overvalued. I believe that trend will continue. I don’t think it’s over, but we have thousands of clients. We have billions of dollars that are positioned to not only capture nominal gains, but play the intramarket volatility between silver and gold and expand their ounces under ownership.
Kevin: Yeah. Probably the theme, if somebody said, what is this company about? I would say legacy and I would say relationship. And that’s what you’ve preached, Dave. There’s relationship. There’s personal relationship with our clients. A lot of our clients are well-trained. We’ve had these conversations for years. They listen to the Commentary. They listen to Golden Rule Radio. But also you have to look at relationships between assets. That’s something that you’ve also talked about. Priced in gold. Priced in gold. What is an acre of land priced in gold? What’s a stock priced in gold? A relationship.
David: And even more basic, the relationships that we have with our clients. I had a phone call yesterday, and a client of ours, a retired California Senator, passed away about five years ago. And his daughter had received the ounces that he had put into his portfolio. And she was interested in buying some land for her kids to be able to move onto. And just the opportunity to speak with the next generation. And I mean, she said, “Look, I can just walk this down to a local coin shop.” I said, “Fine, that’s not a problem. Maybe I can give you some ideas about where we’re at in this cycle. And if you’re gradually liquidating, maybe we can add some value there.” She’s like, “You know, my dad always said you guys were the people to trust. And yeah, it’d be convenient for me just to go down the street and do that. I really want to work with you guys because he knew you for 30 years. The relationship he had with your father, he always spoke so highly of you.”
And I thought, okay, here’s the intrinsic value part of what we do. Across generations, we get to serve people with wisdom and perspicacity. What should you do now? So I think our difference, our edge in this market, is strategy and relationship.
Kevin: Yeah.
David: The gold/silver ratio is now at a 15-year low, and we encourage an incremental approach to shifting from one side of the boat to the other. We don’t know where or when it turns and goes the other way. So for those of you listening, those of you considering an exchange in ounces, now is the time for reallocations.
Kevin: And incremental is the key word.
David: Yeah. I’d recommend 10 to 15% of a silver position to be moved to gold. The higher your silver allocation, the more aggressive you should be. But the higher your starting point on the ratio, the more accretive the trade is and will become. And if you’re doing it incrementally, you don’t have to make a hero call about what is the perfect number? The higher your starting point, again, you’ve got more latitude to do something immediately, but whether it’s 55 to one on the ratio, 50, 45, 40, 35, 30, increments of five to 10 points on that ratio are a clarion call to swap silver to gold. Incrementally. Incrementally. Don’t shoot for perfection. Perfect is the enemy of the good, as they say. IRA assets obviously capture the most ounces because of tax deferral. So that might be a place where you leave what you have in your personal possession alone. You utilize your retirement account to effectively trade ounces on a tax deferred basis.
Kevin: Well, wouldn’t you say, though, even if this ratio continues to get down to, say, 30 to one, 20 to one, even in a taxed account, it really does make sense sometimes.
David: We’re at a 15-year low.
Kevin: Yeah.
David: Are you paying attention? Pick up the phone.
Kevin: Yeah.
David: This is the time. So 31 to one was the end of the silver outperformance in the last cycle, and we’re likely to see even lower numbers in this cycle.
Kevin: That was in 2011. Yeah.
David: Yeah. But you don’t know that. We don’t know that. I have reason to believe that we’ll see lower numbers in the cycle, that silver will continue to outperform, but we don’t know that. It’s not a certainty. So incrementally move and average the cost per ounce into gold. Remember that price is less relevant than the ratio.
The reason I say that is because we’re of the mindset to compound ounces. And so we’re trading overvalued for undervalued on a disciplined basis, and that radically changes the total ounces that you have over time. One of the things we’re trying to solve, as you think about gold and silver as a legacy asset, is we want to overcome the terminal math of moving wealth from one generation to the next. I have four kids. Whatever I accrue through my lifetime will be divided by four. And so this terminal math of division and subtraction, you have to include some way of multiplying. And that is a tool, that is a strategy that the next generation can employ as well.
Kevin: Compounding ounces.
David: We’re not just waiting for a moonshot in gold and silver. There’s a strategy involved. So I would not exit the metals today. I would allow the ratio to help add compounding capacity throughout this precious metal cycle. Our advisors are expert in guiding this process. We don’t sell stuff. We guide a strategy. That’s the McAlvany Precious Metals difference.
Kevin: I had a conversation with a client of ours this morning and he said, “With everything that’s going on, you’ve got a lot of the cost to hedge metals, that type of thing.” He was hearing online that there may be a danger to some of the wholesalers out there. You talked about this in the Commentary a couple of months ago, and I said, “Yeah, there is.” Prosperity sometimes can lead to destruction if you’ve got the wrong relationships and they can’t be counted on.
And counterparty risk, this is a good time to reassess relationships. And I just asked him, I said, “We’ve been around for 53, 54 years, actually since 1972. Do you trust us? Do you trust that we have those kinds of relationships?” And that was one of the things that we talked about. But then the second thing, Dave, with gold and silver, you don’t have a counterparty risk. So for the person who walks out of the door today with some gold, they don’t need the firm that they bought it from.
David: Well, and that’s what Bill King was getting at last week. He said there’s risk if you’re a trader. And what he’s getting at is traders use the options market. Traders use the futures market. Traders are speculating on a bet, and there’s borrowed money, essentially, in play. You have counterparty risk, and the rules can change. And there is manipulation that routinely happens in the paper universe of highly speculative traded gold.
So will we see some wild things happen, changes of rules? Of course, we’ve already seen it happen and will continue to happen. Part of that is natural. On Comex they want speculators to continue to have adequate skin in the game, so they raise margin requirement. There’s nothing wrong with that.
But enough on strategy, I think a functional world order encourages trade and cooperation. A dysfunctional world encourages a reappraisal of relationships between parties and between those parties and their resources. And I think this is where past is somewhat prologue.
Kevin: So from the 1870s, I remember when we had the German mark as a coin from the 1870s. So I went back and did a lot of study, history study. From the 1870s until 1914, we really did have globalization. We had cooperation. We had a gold standard. There was trust, relationships that had to be paid for because the gold didn’t allow too much debt.
David: Yeah. You couldn’t create huge imbalances. There was a self-equalizing component to the bimetalist system, the gold standard.
Kevin: But that broke. In World War I, that broke, 1914.
David: Yeah, that was the first shock to globalization. Think of it as globalization 1.0. And by the late ’20s, you had nationalism, you had protectionism, you had deglobalization which had emerged. You had Senators Hawly and Smoot that promoted a bill. In its final version, it had 21,000 tariffs attached to it.
Kevin: Wow. So tariffs are nothing new.
David: No. And frankly, neither is an interest in controlling Greenland, if you look at the history of that.
Kevin: That’s right.
David: No, it’s been—
Kevin: That goes back, what? Almost 200 years.
David: 150 years we’ve been looking at having that. In fact, the US Virgin Islands were— Was it the Danish or the Dutch? And we said, hey, we’ll give you $25 million for them. They’re like, no. They’re like, well, then we’ll just take them. And they say, okay, well you can pay us 25 million.
Kevin: There you go.
David: These are transactions that have history.
Kevin: Deal done.
David: Deals get done, and it feels weird because we haven’t seen it lately, but it does happen. But the world was in depression by the time you get into the 1930s, with a collapse in free trade and the free flow of capital. Devaluation became a default monetary action to cover the cost of war and of course the rising costs of social safety nets.
So the unwind of globalization 1.0 was certainly attributable to global conflict, but the penchant for guarding domestic economic interests was alive then, and it’s very much alive now. And as we transition away from globalization 2.0, the uncertainty stirred by diminished free trade and an increase in tariffs is driving demand for, lo and behold, liquid and safe allocations into gold. One can argue that during periods of expansion gold is something of a dead weight. You don’t need it. And that’s like having health insurance, but not having health issues. You’re not tapping the insurance policy, so to say.
Kevin: Right.
David: In these periods, gold seems to carry too high a cost. There’s opportunity costs from having too large an allocation to metals. However, during periods of geopolitical strain and trade war stress, gold comes into focus as a valuable reserve asset. And sure enough, what have central banks been doing for several years now?
Kevin: Well, actually since 2008, they’ve been buying more gold than they’ve been selling. And that was a huge reversal, speaking to what you’re talking about, because the 20 years before that, central banks were selling more gold than they were buying.
David: Because the opportunity cost was too great.
Kevin: Exactly. But here’s what you cannot do with gold—and this is what held the first global order together. Had we not have had World War I— I wish it would’ve continued, to be honest with you, the gold standard. What you cannot do is competitively devalue your currency if your currency is gold. Gold carries a value. Every one of these fiat currencies— All it is is a game of who’s going to devalue the quickest. I mean, look at Japan this week, right?
David: Yeah.
Kevin: What they’re facing based on competitive devaluation.
David: Yeah. The threat of competitive currency devaluations among trade partners, as each of them is seeking an export advantage, it motivates allocating to gold as a superior reserve asset, as a stable currency alternative. So that dynamic is very much in play today. You’ve got layers of complexity within the global economy and implicit to the global financial system that are motivating a reappraisal of one of the most basic elements within those systems, the unit of account, money.
Kevin: The unit of account, but see, with fiat, it’s unlimited. People really don’t understand just how tiny and thin the gold market is, or the silver market, or the platinum market. 17 times rarer than gold.
David: Again, speed of movement. Volatility speaks to size. The metals are revealing in real time how scarce they are relative to debt, how scarce they are relative to fiat currencies, and relative to all financial assets. You should expect more of the same. Again, volatility, upside volatility, a good bit of it as the adoption cycle and the reappraisal of systemic risk continues to unfold.
Kevin: Well, and I had mentioned Japan. I think that would be good to talk about right now because currency carry trade, basically, with Japan has been what’s sustained an awful lot of the leverage that we see in the markets.
David: Last week, a key dynamic driving gold and silver markets was the Japanese bond and currency market. So John Authers at Bloomberg summarizes it well. He says, “A run on Japanese government bonds that reached a crescendo last week is now beginning to cascade throughout the rest of the world. Its effects show up, arguably, in the continued spectacular trading in precious metals and in renewed weakness for the dollar. It hasn’t yet had any more malign impacts on risk assets as stock markets opened the week positively.”
Kevin: Okay. But you’ve talked about the bond vigilante. A bond vigilante you can’t fool. If you look at long rates either in the United States or in Japan, rates will rise if people start to think that there’s inflation in the wind or default in the wind.
David: Yeah. So now that the Japanese have a tricky situation to deal with, they’re coming out of deflation. Their rates of inflation are basically on track with ours here in the US. Their debt to GDP close to 250% and they cannot afford higher interest rates. And so a part of the Liz Truss moment in Japan last week is Takaichi, the new prime minister, saying, “Well, we’re ending austerity, and we’re willing to spend more money.”
Okay. So if you’re going to stimulate growth, if you’re willing to stimulate growth, it’s going to have a negative impact on the currency. And yet you’ve got bond yields rising as well. Bond yields rising, currency depreciating, yen intervention, and the Japanese government bond volatility; those are powerful signals. We talk about gold being a signal. You’ve got global debt and currency markets that are in a very precarious place. We know that.
Kevin: Well, when I’m thinking signal, I listened to myself when I just now said “in the wind.” And you remember, toward the end of World War II, when the divine wind, I think that’s what Kamikaze means, is the divine wind. When Kamikaze actually started happening in World War II, that was a signal that that was the last ditch effort. You don’t run a plane into a carrier purposely and kill the guy inside unless it’s a last gasp. It sounds to me like getting rid of austerity, saying it openly, in a way is Kamikaze. That’s a divine wind.
David: Yeah. The Federal Reserve is asking questions about the yen. They were last week, and they may enter the markets to support the currency, sort of a bilateral currency intervention. It showed up. Whether they were taking actions or not, they were talking about it, and you saw it reflected in the dollar. Not a surprise to see the dollar hit by 1.8% last week.
The yen carry trade dynamics continue to be pressured. Yen intervention, currency strengthening in yen, have negative effects on the dollar. That is still a plus in the gold column. It’s still a plus in the silver column. These are really interesting dynamics to keep an eye on. We had global yields rising alongside JGBs—Japanese government bonds—last week, which is very consequential. You think $347 trillion in debt instruments, little moves equal big problems, big moves equal game-over dynamics. And again, you think, “Well, what is gold telling us right now?”
Kevin: Well, and you were talking about how, globally, interest rates started rising based on the Japanese. Okay. So that’s that competitive devaluation. The effect of competitive devaluation is it ultimately takes everyone down at the same time.
So let’s talk, though, about something that hasn’t really been much reported, Dave. But last night I was on BBC, and I was reading about it. Bill King pointed it out earlier, and I think you were on Bloomberg. China, do we have a consolidation of power like we’ve not seen since Mao?
David: Massive. Some have described it as a more significant purge in the upper ranks of the Chinese Communist Party than what we saw under Mao.
Kevin: Wow.
David: Yeah. So Bloomberg summarized it well, what to some looks like a quelling of a coup attempt. President Xi Jinping’s probe into his top general sends an unmistakable message. No one can stand in the way of his total control of the Chinese military. Not even a longtime confidant who helped him consolidate power in the world’s largest standing army. The corruption investigations against Zhang Youxia, the first ranking vice chair of the Central Military Commission, and another senior general have effectively hollowed out the high command of the People’s Liberation Army.
Kevin: Well, and this guy was very, very close to Xi, which in a way I think of a little bit of the line from Shakespeare, “Et tu, Brute?”
David: Right. Well, I mean, it just is one more layer of uncertainty. We don’t know what this means. We’ve got about as much information coming out of China on this as we have coming from Tehran.
Kevin: It’s scant.
David: We don’t know what’s happening on the ground, but it’s not good. It’s not good. There’s more. We could talk about so much more today. Got Rick Rieder’s soaring odds to take over Jerome Powell’s post, coming over from BlackRock. Market operator, not a trained economist, but—
Kevin: Ready to print money?
David: —somebody who knows how to cater to the financial markets. Does he become Trump’s reluctant first choice because he can calm the nerves of the financial markets? I tell you what, the midterms, there’s a lot at stake in the midterms. We have a selloff in equities and you’re talking about a loss of the House and the Senate. He may not like Rick Rieder, but he sure likes what Rick Rieder can do for the markets.
You’ve got endgame financing dynamics at OpenAI and that’s now, that’s 2026. They’ve got billions of dollars in commitments that they’ve made and not enough liquidity. They have to raise a tremendous amount of capital to remain viable. And they raised record amounts of capital last year. They have to raise even more than the records of 2025 to even exist.
Kevin: Everybody’s got to borrow these days.
David: Yeah. Well, you’ve got the incestuous relationships between Nvidia and CoreWeave, dozens of other critical dynamics unfolding in the first month of 2026.
Kevin: Wow.
David: A lot more we still need to cover.
Kevin: So you’re not going to cover that this week?
David: There’s always next week.
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We’ve been listening to the McAlvany Weekly Commentary. I’m Kevin Orrick along with David McAlvany. You can find us at mcalvany.com and 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.
