[This blog post is an excerpt from a commentary published about two weeks ago at www.speculative-investor.com]

In the latest Weekly Update we wrote that government actions would maintain sufficient upward pressure on the prices of commodities, goods and services to limit the central bank’s ability to inflate the money supply. What we meant is that for the foreseeable future there would not be the “deflation scares” that periodically led to large-scale money creation (QE) by the central bank during 2008-2021. However, we expect that the money supply will continue to grow.

In the US, prior to 2008 there was plenty of monetary inflation but no QE programs. Prior to 2008 the monetary inflation was driven by the commercial banks, which create new money (bank deposits) when they make loans and purchase securities.

The following monthly chart shows the year-over-year growth rate of US True Money Supply (TMS), with a vertical red line drawn to mark the start of the Fed’s first QE program in September-2008. Clearly, there were many waves of monetary inflation prior to the introduction of QE, all of which were due to deposit creation by commercial banks. We expect that there will be waves of monetary inflation in the future, again due to deposit creation by commercial banks. Commercial banks have the legal ability to create money out of nothing, so naturally that’s what they will do in the future just like they did in the past.

A problem will arise when the economy becomes very weak and commercial banks stop expanding credit due to a contraction in the pool of qualified private borrowers. We suspect that this problem will be mitigated by incentivising or forcing the commercial banks to purchase more government debt, which they would do by creating new money that the government would inject into the economy via its spending. What we don’t expect is large-scale asset monetisation (QE) by the Fed in response to future economic weakness, because “price inflation” statistics won’t provide the necessary cover.

Anyway, the point we wanted to make is that there probably will be ‘ample’ monetary inflation in the future, it’s just that the money creation won’t be driven directly by the Fed. Due to the popular inflation indices spending most of their time well above the Fed’s target, monetary inflation will become the purview of the commercial banks — just like it was prior to 2008.

[This blog post is an excerpt from a recent commentary at www.speculative-investor.com]

In last week’s Interim Update we noted the speculation in uranium-related equities and listed seven reasons to expect a sufficient increase in the demand for uranium over the years ahead to cause the price of this commodity to move much higher. We then concluded: “Due to [these reasons] and that it would take several years to develop new sources of uranium supply, we don’t think it is unreasonable to expect the uranium price to double or even triple within the next three years. However, there’s a limit to how much higher the prices of uranium equities will be able to move without the support of an upward-trending uranium price. At the moment, what’s needed is a move above the May-2025 high (near US$73) to underpin the speculation.” Well, thanks to a 9% surge in the uranium price on Monday 16th June, the move above the May-2025 high has happened. Refer to the following daily chart for the details.

The uranium price is determined by the supply of and the demand for the physical commodity, so daily price moves such as the one that occurred on Monday of this week are rare. Monday’s unusual price increase was the result of this news:

The Sprott Physical Uranium Trust (U.U.TO), a daily chart of which is displayed below, announced on Monday 16th June that it is raising US$200M (initially the amount was $100M, but the financing was upsized to $200M due to strong investor demand) by issuing new trust units. Also, it announced that the “net proceeds per Unit to be received by the Trust will be not less than 100% of the most recently calculated net asset value of the Trust per Unit prior to the determination of the pricing of the Offering.”

This news was bullish for the uranium price, because the proceeds of the offering will be used to purchase physical uranium, thus reducing the supply of uranium available to meet the requirements of the nuclear power industry.

U.U is in a unique position in that the more new units it issues the higher its own net asset value (NAV) is likely to become, given that the money it raises is used to take uranium out of the market. However, it only makes sense for the Fund to issue new units when its market value is close to or above its NAV. At one point in early-April it was trading at a discount to NAV of around 20%, but the subsequent elimination of this discount opened the door to the current offering.

What happened on Monday of this week possibly will occur again and again, because every time U.U’s market price rises to its NAV or above it will make sense for the Fund to issue more units to buy more uranium, thus driving its own NAV upward.

[This blog post is an excerpt from a commentary posted last week at www.speculative-investor.com]

After a market has been trending strongly for a few months or longer, a piece of extremely bullish news (in the case of an upward trend) or bearish news (in the case of a downward trend) can be the catalyst that sets in motion a multi-day or multi-week blow-off move that at least temporarily marks the end of the trend. This appears to have been the case during April-2025 with the upward trend of the gold/SPX ratio (the US$ gold price relative to the S&P500 Index) and the corresponding downward trend of the SPX/gold ratio.

We remarked in the 21st April Weekly Update that the SPX’s sell-off in gold terms was much more severe than its sell-off in nominal currency terms, paving the way for the SPX to rebound in terms of gold as well as in nominal dollar terms over the ensuing weeks. It turned out that extremes for the SPX/gold ratio and the gold/SPX ratio were set on 21st April.

With reference to the following daily chart of the gold/SPX ratio, the news that appears to have set in motion a 2-3-week upside blow-off was Trump’s press conference regarding “reciprocal tariffs” after the close of trading on 2nd April. At this press conference Trump held up the now-infamous board showing the tariff rates that would be imposed on imports from every country. It quickly became apparent that these rates were based on a nonsensical formula and a nonsensical premise (the notion that if the US has a trade deficit with a country, then the US is being ‘ripped off’ by that country). This shattered any illusions that the Trump Administration was proceeding in a well-thought-out manner, prompting a panic out of US assets and a surge in the demand for gold.

As a result of the panic precipitated by the “reciprocal tariffs” announcement, the gold price gained about 20% relative to the SPX in only 12 trading days. Although this price move could be viewed as reasonable given what was happening in the world, it was so dramatic in one direction that it set the stage for a significant move in the opposite direction.

We expect that the gold/SPX ratio eventually will move a long way above its 21st April high, but this high probably will hold for at least 3 months and could hold for up to 6 months.

[This blog post is an excerpt from a commentary published at www.speculative-investor.com last week]

We wrote in the latest Weekly Update that the Moody’s downgrade of US sovereign debt probably wouldn’t have any effect beyond a knee-jerk reaction, because the downgrade wasn’t significant new information. Prompted by the big deal that was made in the press over this virtual non-event, we thought that it was worth outlining what does and does not matter for the long end of the US Treasury market. We’ll start by listing some of the things that do NOT matter.

First, the so-called “debt wall” does not matter. When you look at a chart showing the amount of US government debt that will have to be refinanced every month or every quarter for the next several years, there always will appear to be a ‘wall’ of debt that has to be refinanced over the coming 12 months. This simply is a function of the fact that 25%-35% of the total debt constitutes T-Bills (debt securities that mature within a year). It is not significantly different today than it was at any time over the past 10 years and it most likely won’t be significantly different at any time over the next few years. On a related matter, almost everyone with a substantial T-Bills holding automatically rolls the position when the old bills mature, so it’s not like the US government constantly is having to find new buyers for its debt.

Second, the Fed staying tighter for longer does not matter, or at least is not bearish, for the long end of the Treasury market, because the Fed staying tighter for longer reduces both the actual and the perceived risk of “inflation”. In fact, at a time when inflation fears are elevated due to what has happened in recent years, it could be more of a plus than a minus.

Third, large-scale selling of Treasury securities by foreign governments is not a serious threat. Foreign governments (via their central banks) buy and sell US government debt securities primarily to manipulate the exchange rates of their own currencies. This involves selling US treasuries when the US$ is strong, with the aim of propping-up the local currency, and buying US treasuries when the US$ is weak, with the aim of preventing the local currency from becoming excessively strong. We see no reason to expect that the trade war initiated by the US will change this method of managing FX reserves.

We’ll now mention some of the things that do matter, that is, some of the legitimate concerns if you happen to own long-dated treasuries.

The main concern is the fiscal deficit. This is not only because a large fiscal deficit results in a large increase in the supply of new government debt securities, but also because a large fiscal deficit generally will lead to higher “inflation” by diverting savings from the relatively efficient private sector to the relatively wasteful public sector. The worst-case scenario is a fiscal deficit that is both large and increasing as a percentage of the economy.

With reference to the following chart, if we ignore the Covid-related extremes of 2020-2021 we can see that the US federal deficit is large and steadily increasing as a percentage of nominal GDP (the downward trend on the chart reflects a rising deficit/GDP ratio). Moreover, the budget bill that currently is making its way through the US parliament would all but guarantee the continuation of the adverse trend, because this bill front-loads tax cuts and back-loads spending cuts. This is a good reason to expect lower T-Bond prices and higher T-Bond yields over the years ahead.

Another valid concern is the inflationary effects of tariffs. The tariffs that Trump seems determined to impose could lead to an upward ‘blip’ in the popular measures of inflation within the next several months, but the more important longer-term effect is that they will reduce the dollar’s purchasing power by making the economy less efficient. This is a secondary reason to expect higher bond yields over the years ahead.

A third valid concern doesn’t apply right now, but it’s likely that when coincident and lagging economic data clearly signal “recession” the Fed will again take actions designed to rapidly boost the money supply. There’s a high probability that this will happen at a time when the government’s deficit is growing rapidly due to the combination of declining tax revenue and rising costs associated with government support and stimulus programs, leading to an inflation surge.

Summing up, some of the reasons to be bearish on the T-Bond that often get mentioned are not valid, but there are some very good reasons to be bearish, at least beyond the short-term. In particular, currently there appears to be no political will to end the deficit spending or even to cap the deficit’s growth rate, which means that any limits will have to be imposed by the bond market. This would be done via higher bond yields.