hello my friends today is February 22nd and this is Markets weekly so this past week we saw the S&P 500 make new all-time Highs but the markets did take a notable tumble on Friday some of the common stories for that were weaker than expected us data February options exper and my personal favorite a strengthening Yen but today let's talk about two things first we have to talk a little bit about gold which has been on an absolute tear there are two new stories trying to explain that they're pretty interesting so let's listen to them secondly
we have to talk a little bit about the Japanese Yen which I think will hold the key to the US Equity markets for the next few months okay starting with gold now if you look at this chart of gold prices you notice that gold looks like it's going to the Moon we seem to be making new all-time highs every single week now December I gave a you know I was pretty bullish on gold gave gave a price target for 2025 of $3,000 and now it looks like we'll hit that maybe next week or any moment
so what's behind this Relentless Ascent now we've talked about this before when it comes to Gold people have many different um perspectives people buy gold for different reasons one of course we can talk about it through a more of a traditional lens looking at the strength of the dollar now if you look at the dollar Index you can see that the dollar Index seems seems to have hit a high a few weeks ago and has been gradually declining since weaker dollar higher gold prices makes total sense another common lens to look at gold prices is
through geopolitical risk and here it's a bit more puzzling now we all know that President Trump has been very determined to end the war in Ukraine and has also opened diplomatic over tours to Iran Venezuela and you know other nations that are are usually I think in more higher risk regions and so that would argue for Less geopolitical risk but at the same time it does seem like the Trump trump is taking the US foreign policy in a very different direction where they don't want to guarantee the security of Europe anymore so in that sense
there there is some increased uncertainty but overall though I would expect lower War tensions to to put downward pressure on gold but that hasn't happened now two new stories though are are also pretty interesting and I think have some truth to them one new story is tariffs now as we all know president Trump really likes tariffs and have talked about putting tariffs on a lot of things now a lot of people who are worried that well what if you put tariffs on gold then a $3,000 gold bar you know if you put a 10% tariff
that becomes a $3,300 uh gold bar and we want to get ahead of that right and so maybe people are trying to get ahead of potential tariffs and buying gold and importing that into the United States uh as much as possible and you know that does seem to be part of what's Happening here so if you are someone who was a you know trying to move gold into the United States one way to do that is through the Futures Market uh a gold Futures is basically a commitment to purchase 100 ounces of gold per contract
now usually this is done by speculators and producers so if you are an investor and you were thinking that the gold price would go higher uh what thing you can do is you can buy gold through gold Futures you get lots of Leverage in a liquid market and can easily have a lot of exposure very quickly if you are someone who owns a gold contract you can also stand for delivery and when that happens um you will at the delivery date the comx so this is the warehouse that that for uh the company that runs
the operates the uh gold Futures Market will send you 100 ounces of gold per Futures Contract and you will wire to them uh the amount of money for that purchase now usually though when people speculate in the gold market they don't want physical they just want to speculate in paper gold basically so they will close out their Futures Contract and simply roll it to the next quarterly expiration date but if you do want to move gold physically into the US you you would just hold for delivery and that seems to be what people are doing
so if you look at this chart of gold in the comics gold vaults you notice that they are absolutely surging so that tells you that there are a lot of people buying Futures and just standing for delivery and having that gold delivered uh into the comics Vault now you can have it delivered to your home of course but usually uh what happens is that the gold is of course you have title to it but its physical location continues to rest in the comics gold vault or another Vault of your choice um now where is all
this physical gold coming from it seems like it's coming from London now the Futures Market is based in the US but the physical Market is largely based in London so what's happening is that people are buying Futures and the people who are short the Futures are delivering gold to the New York Vault and New York Comics Vault and a lot of that vault lot of that gold that's being sent to New York seems to be coming out of London and you can see this where people uh put lots of gold in the Bank of England's
gold vault and now are taking that gold out and shiing it uh to to the us and this whole dis allocation where gold physical gold is moving from out of the country into the US in part through Futures Market uh seems to be driving some disallas in the gold market and pushing gold prices higher another way can see this is gold lease rates where people you know let's say you sold short a gold contract you want to deliver a physical gold you don't have physical gold at the moment you can go out and borrow it
to deliver um these lease rates are surging and that tells you that there is really a shortage at least in some parts of the physical market so that is a story that to me makes sense and may not continue of course we don't actually know if Trump really will put tariffs on gold and ultimately of course I mean not all of the gold in the world will flow into the us there has to be some uh exhaustion point for this and one way to measure that is the spread between the spot and Futures uh gold
markets in that spread there was a very large premium a few weeks ago that does seem to be closing a bit okay another story that is a little bit more on the fringes is gold revaluation so the United States has tons and tons of gold and this is a legacy from the Bren Woods area era where we were on a gold standard where dollar was picked to gold and everyone else was basically using dollars now we moved off the Bren Woods system in the 1970s but on the books in the UN United States gold is
still valued at $47 an L again market price for gold today is about $2900 per ounce now if we took all the gold that the United States had and revalu it to market prices that means the United States would be much wealthier by the tune of say 7800 billion now over the past few weeks there have been comments from Trump officials that we want to use the entire balance sheet of the United States we want to exploit the asset side of our balance sheet and that has led some to speculate that maybe that means that
we're going to take all our gold and use it in some way after all that gold is worth $20 $9,000 an ounce and on the books it's only $40 some an ounce seems like you know that's a lot of free money and that seemed to gain momentum when uh Elon Musk is talking about uh auditing Fort Knox so Fort Knox is a place where a lot of us goal is held and this is one of things the things I love about modern politics so Zero Hedge had a tweet asking Elon to audit the golden Fort
Knox Elon actually replied and Elon being good friends with the president seem to have spoken about this with the president and you hear president Trump talking about auditing Fort Knox as well so it looks like it's going to happen so all this chatter led to some speculation that hey maybe the US will um be using this side this asset on their balance sheet now how would this actually work mechanically no that's kind of a puzzle now on the one hand if the US suddenly revalued its gold it has say extra $800 billion maybe it could
you know get cash for that that from the Federal Reserve maybe that increases the cash balance in the TGA and then the US can get spend that we won't have to worry about the debt selling as much but then expand that that enormous amount of monetary expansion you could think of it as having an upward pressure on inflation and so forth alternatively maybe you have you know take all this gold and you actually go and sell it in the market to raise cash to do some spending uh you know that seems to me like it
would tank gold prices but you know that is something else that could happen as well now what is the conclusion of all this speculation well secretary bessent basically poured cold water on that in a recent interview let's listen to what he said one thing potentially that could happen and people are questioning it is maybe remarking gold Elon Musk who's leading Doge was talking about maybe going to Fort Knox to make sure those gold reserves are there that comes under your purview do you have any plans to visit Kentucky uh I I don't have any plans
I can tell you that that we do an audit every year I can tell tell the American people on on camera right now that the there was a report September 30th 2024 all the gold is there any US senator who wants to come and visit it can arrange a visit through our office gold was your biggest holding when you were hedge fund manager before you divested to become the treasury secretary so you know the value of where gold is right now versus where it's marked on its balance sheet just north of $40 an ounce it's
close close to 3,000 is it under consideration for this Administration to revalue Gold uh I think that somehow when we were talking about the Sovereign wealth fund and I said monetize the balance sheet I can promise you that's not what I had in mind so it's not under consideration not on the table that's not what I had in mind uh basically he's like what are you guys talking about that's really not what I meant and I agree with him so I watched all the Trump press conferences and I remember vivly when that comment about you
using the asset side of the balance sheet came in and that was clearly in the context of trying to use the Abundant natural resources of the United States now again these people are businessmen right so when they're talking about the US debt they see that as a large liability well 20727 trillion worth of debt so the United States owes a lot of money but that's only one part of the balance sheet the United States also owns tremendous amounts of assets right it owns nuclear weapons tanks and also millions and millions of acres of land as
well as the mineral riches underneath it so that could be gold silver it could also be natural gas uh oil and so forth so that discussion was very clearly in line with the Trump administration's effort to uh get energy prices down saying that we own a lot of Natural Resources we should be using that both to try to get inflation down but also to try to pay down our debt so it was in that context this was said but you know it seems like it was confusing to to the market so no the US will
not be revaluating its gold but in any case uh the gold Mark gold prices continue to go higher and um we'll see what happens again seems like it's a very interesting story but again nothing goes up in a straight line okay the second thing that I want to talk about is the Japanese Yen now if you look at this chart of the Japanese Yen that you notice that it's been strengthening notably over the past few weeks what is the driver for this in large part it's the expectation of monetary policy now something very interesting is
happening in Japan now whereas inflation for most of the other developed markets has been trending lower in Japan inflation has been trading higher in fact inflation is about 4% in Japan it's actually higher than it is in the United States now that of course is a problem for the bank of Japan because well they have a 2% Target and you are notably notably overshooting your target so that has led the market to price in more interest rate hikes now interest rates in Japan are still very very low but as the market continues to pric in
more hikes that is and in the United States is you know either R are going to stay where they are or uh lower be lower in the future that interest rate differential between Japan and us is going to narrow and that argues for a stronger currency and you can see the market pricing and more boj hikes by looking at the um let say the 10-year jgb you can see the 10-year jgb it looks like a rocket ship it's going straight up now to be clear it's still very low say 1.4% but during that period of
time 10e yields in the US have been range-bound so if Japan continues to H like if inflation stays high in Japan you can expect the Japanese yen to continue to appreciate now the Japanese yen is a wild animal if you look at a history of Yen price movements you can see that sometimes it can appreciate very very suddenly now I'm talking about a few perent in a single day doesn't happen often but it's happened before and it has over periods of time also moved a lot over the past few years so if you have Japanese
Yen strengthening that usually has a direct KnockOn effect on us assets because a lot of people Finance positions in US Assets in Yen and I'm not talking about big funds who you know are globally active and maybe they borrow in Yen and buy dollar denominated assets I'm talking about just you know Japanese investors be it retail or be it their own investment funds just having a lot of Yen and needing to invest it somewhere now us yield have been higher than Japan so that's attractive US Stock Market have again been outperforming the Japanese stock market
um especially when it comes to Tech right we have all this Nvidia and stuff like that so seems like there's a lot of you know retail investors again DG are Global and if we know one thing about DG is they like us tech stocks and what could happen is that as a lot of investors from Japan who have invested in US Stocks as they see the US Stock Market may be going nowhere maybe trending lower as they see the Yen appreciate so they're losing money on the currency side they're taking losses maybe they just you
know close their positions and go home and that could easily lead to some kind of avalanche where you say stock prices decline in the US and the Yen strengthening leading off to a a basically another dealing cycle again we had somewhat of a preview of this last August but you know this is something that I think is will be recurring going forward so I think we should watch the Japanese Yen very closely the more it strengthens I think the more cautious we should be when it comes to the stock market um all right so that's
all I prepared for today thanks so much for tuning in and I'll talk to you all oh don't forget to like And subscribe and I'll talk to you guys next week
