00:00I don't even know how to make sense of what we're seeing in gold right now, because it feels like gold, along with some of the other metals, are trading like growth stocks, including those sharp drawdowns.
00:09How does it look and feel to you?
00:13Wow. Yeah, what a spectacular market. I mean, these markets are going vertical.
00:17Two months ago, silver was $60. Now it's $115 today, almost $120.
00:23Been trading at $120. Gold is up at $5,500. Just spectacular bull markets.
00:28I would say that the participants and the drivers of the capital allocation of both of these markets are quite different.
00:37I would say gold is much broader. So gold, retail, institutional, central bank, whereas silver, certainly the last $60, I think, in upside has been very retail.
00:49Like it's a retail frenzy in silver, China, India, global, broad based retail, but only retail, not central bank, not institutional.
00:58Right. And I keep reading about how Chinese speculative buying is a big driver of the rally in metals.
01:03And certainly that happens when I come in in the morning and you've seen big gains overnight in Asia.
01:08What do we know and what do we still need to understand about this source of demand?
01:12How durable is this group of investors or traders or speculators versus how fleeting?
01:17How much of it is pure speculation? Is there any part of it that's fundamental?
01:20Sure. I mean, the traditional fundamentals of markets like silver or even copper are actually quite weak at the moment.
01:28So I think this is very much about capital allocation.
01:31And in terms of the China component of it, I don't think it's any more complicated than China retail saw that silver went from $20 to $60, bought it, figured out that when you buy it, it goes up.
01:47When you buy more, it goes up more.
01:48And, you know, what's the sensible thing to do in that environment?
01:52It's to buy more.
01:54And so that's kind of what's happening.
01:57I mean, I'd just say how remarkable it is that, you know, in my career, typically India and China step back from silver and gold when their prices rally.
02:07They tend to de-stock, tend to step away from the market.
02:11For the first time in my career in 20 years, they're really stepping into the market at the highs and then creating, helping create new all-time highs.
02:19In terms of durability, I think that's very difficult to say other than these markets are tiny compared to the capital flows that are potential.
02:29And that's part of the reason why we upgraded silver to $150.
02:33So we hit the $100 target we had within two weeks of putting it on, and so we had to make a decision.
02:39So we went to $150, and that's all about, you know, silver's probably going to keep going until it looks expensive by historical metrics.
02:48Right.
02:48OK, so, I mean, today the drop in gold is blamed in part on the recovery in the U.S. dollar.
02:54But overall, the story has been a weaker dollar.
02:56It's near a four-year low, and that is helping explain the story behind the rise in commodities.
03:01What is leading what here?
03:03Is it the dollar or is it commodities?
03:07I think there are a long list of reasons why people are allocating to gold and silver, not least because they have been going up, so part of it's momentum.
03:15Yeah.
03:15But it's a long list of factors, whether it's the concern about debasement, Fed independence, deficits in the West, whether it's about a lack of other options to invest in in China, property market weakening, whether it's geopolitical.
03:32So there's – I would bucket them into geopolitical concerns and economic concerns.
03:37On the geopolitical side, as you know, there's a long list of risks out there, whether it's related to Iran, Russia, Ukraine, China, Taiwan, Japan, or, you know, and that's just the geopolitical.
03:51On the economic, you know, we'll just see – we're not – you know, we're not sure that we've seen the worst of the tariffs yet on the U.S. economy.
03:58You know, we're not – we're not yet actually having Goldilocks.
04:02We're hopeful that Goldilocks will happen, and we expect it will through the second half, but it hasn't happened yet.
04:07So there's still a lot of economic risk out there as well.
04:10Yeah. So this might be an out-of-left-field question, but when you look at demand for gold, it's driven by ETF buying and central bank buying.
04:17But also, I've learned, the crypto giant Tether, which has bought over 70 tons of gold over the past year and plans to keep buying one to two tons of gold a week indefinitely.
04:27It has holdings of about $24 billion of gold, which I know is tiny relative to gold's market value of $30 trillion.
04:33But how significant is that idea that there are new buyers of gold like Tether, like other crypto companies?
04:40Yeah, I think that speaks to the breadth of the buying.
04:43So, you know, I think it's great that you called that out because Tether – I mean, they're buying roughly the equivalent of what the Polish central bank is buying, and they're the second biggest buyer after China.
04:55So, it goes into this – I mean, this market only – we only produce around 3,800 tons of gold a year that needs to – you know, people are competing for effectively.
05:09And around 1,000 tons of that is going alone to China, central bank, plus Poland, central bank, plus Tether.
05:19You know, between them, they're taking 1,000 tons of that, over a quarter of that supply, which five years ago wasn't happening.
05:26And there's not much left to make jewelry and turn into bars and coins for investors.
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