Gold Futures moves with uncertainty, and by George, do we have a gob full of that. The US has for decades been THE sanctuary country. In terms of capital, it is where global capital flees to in times of uncertainty and crisis.
The question I have is this. What happens when that veneer of safety is peeled away revealing a country ruled by mobsters, where the rule of law is as suspect as Diddy’s parties?
Gold is sniffing things out.
And yet….
Adam Taggart posted the below and it lines up with what we’re seeing in the markets. There is still very little participation by institutions and almost nothing from retail.
"Gold & silver investors might find this interesting:
I just got off the phone with a veteran gold dealer/shop owner.
Despite gold rising to an all-time high this year & silver’s recent surge to $35/oz, he’s not seeing any boost in buying enthusiasm from the general public Premiums on PMs are low right now due to this lackluster demand In fact, his customers are net sellers.
He says the only movement he’s seen is that maybe the ratio earlier this year of 5 sellers for every 1 buyer has now decreased to 3 sellers to 1 buyer.
These sellers mostly fall into the following categories:
- bitter folks who bought back in 2012 who have been waiting to get back to even (nominally)
- "loose hand" investors who have enjoyed a nice short-term return & simply want to pocket the profit
- people who need the money. So, if the bull market indeed runs higher from here, he thinks we’re still in the early innings of it.
The general buying public doesn’t get involved until the final inning or two…and he doesn’t see us as anywhere near that.
Currently his store has few customers per day and most transactions are done by appointment. He contrasts this with the early 1980s gold run when he’d arrive at the shop to find a line outside the door stretching around the block. In those days, he’d had to let the sellers in first, so that he’d then have inventory for the buyers to purchase!"
Tight Capacity in Offshore Oil Services
Looking at the behaviour of a number of offshore Crude Oil WTI Futures service stocks as of late, you could be forgiven for thinking that the industry is staring down the barrel of a significant contraction in earnings. However, this isn’t the case. In fact, it’s quite the opposite, as this article suggests.
Developing oil and gas projects is expected to be more costly in the coming two years as supply chain bottlenecks continue to affect capacity, according to Rystad Energy.
Tightening availability of rigs and vessels, components and subsea services has characterised exploration and development activity over the last two years, with costs rising as a result, the consultancy said.
Audun Martinsen, head of supply chain research at Rystad, estimates that costs to develop offshore projects rose 12% between 2022 and 2024, and further increases are on the cards in the next two years.
"Expect to see increased lead times due to tight capacity," said Martinsen during a recent Rystad Energy event in London.
The consultancy forecasts that oil and gas project costs will increase, for both offshore and onshore projects, but the offshore segment will see a larger hike.
Offshore oil and gas projects will see a 9% increase in costs through 2026 against this year, Rystad estimates, while onshore project costs will rise 7% in the next two years.
Shale is the only segment that will see a projects cost drop of 5% in 2024-26, following an 8% increase in 2022-2024.
"For oil and gas supply chain, tight capacity remains," Martinsen told Upstream.
Tightness in the capacity to deliver offshore services is what we have been saying for the last few years. In fact, we don’t believe there has been any increase in capacity over the last five years (ever since oil bottomed back in early 2020), and there is a big reluctance on the part of management of offshore oil service companies to do so. Combine this with rising capex, and it is a recipe for dramatic increases in earnings over the next five years.
Of course, it is all easy saying that. The hard part is waiting it out over the next couple of years or so.
As US shale falters offshore oil gains:
Pray tell, where is all the capital sitting… if not in these industries?
Well, NVIDIA (NASDAQ:NVDA) now has a greater market value than the entire German stock market and the entire Italian stock market… COMBINED.
Now, of course, both Germany and Italy have their own set of problems, and I am not suggesting either are worth buying (you know my thoughts on Europe). But this doesn’t make Nvidia’s valuation any more sane than Bruce Jenner’s cutting off his special bits makes him a she.
The Laffer Curve: Coming to a Neighbourhood Nearby
Recently, the UK budget was handed down. The government has already said they’ve run out of money and need to find some more. But they have limited options.
Here’s a snapshot…
Already, 1% of people pay 29% of income tax and 10% pay 60%.
Already, government spending is 45% of the economy. Already, the UK has 500,000 civil servants. Already, 10,000 millionaires have fled the UK. They are facing a true fiscal disaster.
The Laffer curve refers to the proven situation that has been evidenced many times in the past, and it is this — there comes a point where higher tax rates collect LESS in tax revenue. The higher rates reduce ambition or force people to leave. Every business owner knows that putting prices up too high without offering great value will decimate revenues.
Governments are parasitic in nature, meaning they have a propensity to grow too large. Literally no one in government is incentivised to find game changing efficiency, slash pointless jobs, and deliver outcomes with lower overheads. None of them are thinking from first principles about how to solve problems in new ways.
Furthermore, you’ll never see them even suggest that they are bloated, incompetent, inefficient or behind. You’ll only hear them say they need more money from hard working, ambitious risk takers and innovators.
They tax you for earning it. They tax you for spending it. They tax you for investing it. They tax you for leaving it to your kids. Eventually, plenty of smart people get fed up and walk away from this game. We are certainly at that point.
Technically speaking, it looks like this…
Here’s my version of the Laffer curve:
On the other end of the spectrum we have this…
Dubai has approved the government budget for 2025-2027 with revenues amounting to Dh302 billion and expenditures of Dh272 billion, which is the largest in the history of the emirate.
Revenues for the period are expected to exceed expenditures by about Dh30 billion.
Taking to X, Sheikh Mohammed bin Rashid Al Maktoum said: "Praise be to God, today we approved the Dubai government budget for 2025-2027, with revenues amounting to Dh302 billion… and expenditures of Dh272 billion, which is the largest in the history of the emirate.""46 per cent of next year’s budget has been allocated to infrastructure projects including roads, bridges, energy, and drainage networks, in addition to the construction of the new airport… and 30 per cent of the budget to health, education, social development, housing, and other community services," he added.
It’s almost like if you steal more from the peasants you get less, and if you allow the peasants to have more, you get more. Weird!
The Ruler further said that next year’s budget will achieve an operating surplus of 21 percent of total revenues for the first time.
See that? A twenty one percent budget surplus! Sheesh! If I didn’t know any better, I’d say that part of this has to do with Europeans fleeing financial tyranny, but then I would be reminded by lefties that Dubai is a dictatorship ruled by a madman. Better off with stupid Starmer, I guess.
Keir Starmer warns the UK budget this week will reflect ‘harsh’ economic reality
Starmer hopes voters will accept his argument that higher taxes and limited public spending increases are needed to "fix the foundations" of an economy that he says has been undermined by 14 years of Conservative government. But his message — things will slowly get better — is a risky one in a high-speed political world.
Hahaha, yes. We’re all going to stay aboard the sinking ship that is the UK. Quite honestly, I think the situation in the UK is now hopeless. It is Davos man’s wet dream — a tyrannical technocratic feudal system is already in full swing. I think it accelerates and with it the collapse of the economy, a collapse in social fabric (already taking place), and within 10 years poverty levels that will shock you. I hope I’m wrong, but I don’t think so.
Implications of a Rising Gold Price
Is gold rising in price or is it that paper currencies are falling? Well, gold in multi-currency terms is rising.
Gold in US Dollar, EUR/USD, AUD/USD, and SGD
And take a look at gold relative to the Dow. it has been lower before, but it isn’t much off those lows. In other words, from a relative perspective it can go way higher.
Now, here is something interesting (at least we think it is) — the MSCI World (total return, so with dividends reinvested) priced both in US dollars and gold.
Granted, it is all easy after the fact. Note the gap that opened up since 2003. Can we go so far to say that the gains in the world stock market over the last 20 years have been solely due to money printing? The bull market in the 1980s and 1990s was REAL. The bull market from 2003 has been NOMINAL — it’s not real, rather it’s a construct of the devaluation of the US dollar (and fiat currencies in general) or continual increase in government debt.
Here’s the same exercise again, but this time looking at the S&P 500 (total return) in US dollar nominal and real terms.
It is scary to think that you would have done much better just putting all your savings into gold from 2000 onwards rather than investing in stocks.
Ok, this is all rather fascinating, but what are the investing implications hereon in?
It’s not an equity market bubble as such as much as it’s a debt-fueled bubble. The world is addicted to rising debt levels!
Seems to us that this bubble only ends when the government can’t print more debt. And why would that be? Inflation becomes too high (although, how long is a piece of string).
Seems it can’t happen willingly. Remember when in 2019 Jerome Powell tried to taper the Fed’s QE programs and normalize the balance sheet? The chart below shows how the stock markets reacted and sold off 22% over the subsequent three weeks, forcing Powell to reverse course and prove you can’t taper a Ponzi scheme.
So inflation is going way higher, and we are positioned for higher inflation. Remember these two charts from the last Insider Newsletter issue?
Debt and the Cost of Energy
Take a look at this…
This begs the question: what if interest rates move higher? Interest rates moving higher would be largely a reflection of the cost of energy moving higher.
Maybe there is a desperation on the part of the US to not let oil prices rise? Take a look at gold against oil.
