[This blog most is a slightly modified excerpt from a commentary published at www.speculative-investor.com about three weeks ago]

We consistently have been predicting lower price inflation for almost three years now, but we also have been predicting that the downward inflation trend would be followed by another major inflation wave. It’s likely that the next major inflation wave will begin this year and continue for at least two years. It’s also likely that it will be driven more by government actions than by the creation of new money (monetary inflation). We’ll now explain why.

Despite the famous Milton Friedman comment to the contrary, price inflation (a rise in the cost of living for the average person) is not always a monetary phenomenon. It also can be a government phenomenon. The reason, in a nutshell, is that government interventionism and deficit-spending can distort the economy in a way that reduces productivity, leading to lower production and therefore to higher prices even in the absence of monetary inflation. In very simple terms, government actions can result in the same amount of money chasing less goods and services, causing prices to be higher on average.

Going deeper and focussing on the US, by its deeds and words it is reasonable to conclude that the US government will be 1) increasing its already-massive deficits over the years ahead, 2) driving up the costs of manufacturing in the US through tariffs on imported materials, and 3) using tariffs as a negotiating tool, thus ensuring that many business leaders remain uncertain about the costs that they will face in the future. There also is a risk that the US government will take actions that discourage foreign investment in the US.

An effect of the above-mentioned government actions will be reduced investment in productive enterprises. We note, for instance, that unless the additional debt issued by the government to finance its increased deficit spending is monetised by the Fed, it will crowd out investment in private businesses (the productive part of the economy). Furthermore, as well as driving up manufacturing costs, tariffs imposed on commodity imports probably will lead to shortages of some important commodities. While this could prompt efforts to increase local supply, due to the time, energy and materials it takes to bring new mines into production this additional building activity would, for at least a few years, have the effect of applying additional upward pressure to commodity prices and popular measures of inflation.

With the government putting upward pressure on many prices by making the economy less efficient, the Fed will not be able to justify the sort of monetary interventions it conducted during 1998-2021. The following chart shows that during this earlier period the year-over-year growth rate of the Core PCE (the Fed’s favourite inflation gauge) never went above 2.7% and spent most of its time in the 1%-2% range, effectively giving the Fed cover to ‘print’ as much new money as it deemed necessary to support the stock market and stimulate economic activity. That cover will not exist over the years ahead.

In addition, with it being obvious to almost everyone that the Fed contributed in a big way to the inflation problem of 2021-2023, from now on the Fed will tread far more carefully with regard to inflationary measures.

Consequently, we expect that for at least the next couple of years the Fed will be unwilling to mitigate the crowding-out effect of the government’s expanding indebtedness.

On a related matter, periodically in the past there would be a ‘deflation scare’ — a set of circumstances during which the Fed and other central banks effectively had carte blanche to ramp up the supply of money. Due to government-created shortages and price distortions, it’s unlikely that there will be a deflation scare within the next few years.

Summing up, the world has changed. For more than two decades every economic downturn or financial crisis was met with a new round of aggressive money creation, each of which set in motion a boom that ended in the bursting of an investment bubble, a deflation scare and another round of aggressive money creation. That won’t happen in the future, because government actions will maintain sufficient upward pressure on the prices of commodities, goods and services to limit the central bank’s ability to inflate the money supply.

[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.

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

The US CPI numbers reported on Tuesday 13th May extended the downward trend that began in mid-2022. As illustrated by the following chart, the year-over-year growth rate of the US CPI has just made a new cycle low. The Core CPI’s growth rate is significantly higher and was reported to be unchanged at 2.8%, but its annualised growth rate over the past three months is only 2.1%. Therefore, the Core CPI also is moving in the right direction. However, the implications and the outlook are not clear.

The last time the CPI’s growth rate was as low as it was in April of this year was February-2021, at which time the Fed was inflating the money supply aggressively via its QE program and maintaining a target interest rate of around zero. Now, the Fed is still draining money via QT and expects to keep its targeted interest rate at 4.25%-4.50% in the short-term. Why?

The principal problem is that the Fed has no way of knowing what its monetary policy should be, because the correct interest rates and monetary conditions are those that would exist in the absence of the Fed. The Fed is the equivalent of a giant spanner that has been thrown permanently into the monetary works. The best that anyone reasonably can hope for is that the damage it does is counteracted partly by private industry.

A secondary issue is that having exacerbated the inflation problem by being so blatantly late in stopping its monetary easing and starting its monetary tightening during 2020-2022, the Fed is now being overly cautious with regard to any actions that would ease monetary conditions.

A related secondary issue is that the constantly shifting tariff situation is causing uncertainty at the Fed just like it is causing uncertainty everywhere else. The news that the US and China governments have agreed to slash tariffs by 115% — from 145% to 30% in the case of the US and from 125% to 10% in the case of China — is positive, but at this stage the reduced rates are for 90 days only and still leave the average tariff rate for US imports at around 18%, which is the highest since 1934.

The tariffs will be more negative for economic growth than positive for inflation, but they could cause an upward ‘blip’ in the official inflation numbers over the next few months if the economy doesn’t tank in the meantime. The decisionmakers at the Fed are concerned about this possibility and therefore are reticent at the moment to make any moves in the easing direction.

Due to the uncertainty regarding the effects of tariffs, it’s possible that the US economy will have to become very obviously weak before the Fed makes its next decisive move to loosen monetary conditions. If so, this will magnify the severity of the recession that probably has started or will start soon, although the Fed’s slowness to loosen won’t be the primary cause of the recession. The recession will be the result of several years of malinvestment, with a final push coming from the “policy uncertainty” of the past few months.

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

We expect that a 1-2 year or perhaps even longer upward trend in commodity prices will begin this year. Although we will refer to this upward trend as a bull market, strictly speaking it shouldn’t be labelled as such. This is because there actually is no such thing as a commodity bull market, meaning a bull market in a broad index of commodities such as the GSCI Spot Commodity Index (GNX) or the CRB Index. There are only gold bull markets that eventually expand to encompass most commodities. In other words, what we are anticipating is an expansion of the gold bull market to encompass most other commodities.

Gold bull markets begin and are sustained by monetary and governance factors. In short, there is a decline in confidence in the official money and/or the banking system and/or the government that causes an increase in the demand for gold, meaning an increase in the desire to hold gold bullion. These bull markets have nothing to do with gold supply, since for all intents and purposes the supply of gold is constant over a normal investment timeframe*.

Eventually, the issues that have been discounted by the gold market lead to higher prices for many other commodities, but, for all commodities other than gold and to a lesser extent silver, supply can be a major price driver. In fact, the non-monetary commodities that have the most severe supply restrictions tend to be the ones that rise in price the most after monetary/governance factors set in motion a broad upward trend.

Every cycle is different in some way and this time around one of the major differences has been the extent to which price trends have been elongated by the concerted attempts, during 2023-2024, to counteract the Fed’s monetary tightening by pre-emptive recession-like deficit spending on the part of the US government and actions by both the Fed and the Treasury that sustained ‘liquidity’ in the financial markets. These actions postponed the start of a US recession by 1-2 years and also, we think, substantially widened the gap between the start of a gold bull market and the start of a broad upward trend in commodity prices (a gold bull market began in Q4-2022 and a general commodity bull market is yet to begin).

Just as the performance of the gold price telegraphed weakness in the US dollar, it is telegraphing a large, broad upward trend in commodity prices. Furthermore, the upward price trend will be exacerbated by artificial shortages caused by Trump’s trade war. Like the Covid lockdowns, the tariffs and the uncertainty regarding future tariffs have disrupted and will continue to disrupt supply chains.

We expect that a broad upward trend in commodity prices will begin after it becomes sufficiently clear that the US economy is in recession to prompt monetary and fiscal measures designed to stimulate economic activity. This is likely to happen before the end of this year and could happen as soon as the next three months.

*Almost all the gold that has ever been mined remains available to satisfy demand today, with the global mining industry adding only about 1% to this existing stockpile every year.

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

Due to everything we are seeing and expecting, including the performance of the gold price and shortages that potentially will stem from Trump’s trade war, we think there’s a very real possibility that an equity bear market could unfold in parallel with a commodity bull market. If so, it would be very different from anything that happened over the past three decades, a period during which the commodity markets generally weakened when the stock market was very weak, but very similar to what happened during the 1970s. As illustrated by the following monthly chart, a broad basket of commodity prices rose substantially during the equity bear market of 1973-1974.

By the way, the chart also shows the remarkable stability of commodity prices when the US$ was linked officially to gold.

We hasten to point out that right now there is only tentative evidence in the price action to support the above-mentioned scenario. In particular, the first of the following charts shows that equity prices (represented by the SPX and shown in green) and commodity prices (represented by the GNX and shown in black) plunged together in early April and have since rebounded together — price action that does NOT support the idea that commodity prices will be able to trend upward while equity prices trend downward. However, the second chart shows that commodity prices have been strengthening relative to equity prices since early-December of last year.

What we could see over the coming quarters is more of what happened since early-December of last year, with commodity prices generally strengthening relative to equity prices but getting hit during the brief periods when equity prices fall rapidly and there is a rush for liquidity.

[This blog post is a modified excerpt (for example, it contains updated charts) from a recent commentary published at www.speculative-investor.com]

Think back to how bullish almost everyone was about the US dollar’s prospects at the start of this year. Also recall that our view at the time was that the Dollar Index (DX) was set to make a very important peak in January-2025, after which it would trend downward for at least a year. Actually, our view going into this year was that the DX had commenced a cyclical decline in September-2022 and would resume its cyclical decline in January-2025. The fact that it recently made a new cycle low confirms that the DX has, indeed, been in a cyclical bear market since September of 2022 and that the strong rally from the September-2024 low was nothing more than a countertrend move. So, what now?

Before attempting to answer the above question, we present herewith a daily chart and a weekly chart of the DX. The daily chart shows the virtual crash of the past two weeks, while the weekly chart shows that the DX has broken below its July-2023 low and is at its lowest level since April of 2022. Both charts show that the DX is extremely oversold.

Due in part to the performance of the US$ gold price, we doubt that the DX’s cyclical decline is complete. This is because on an intermediate-term basis the gold market does not react to trends in the US dollar’s exchange rate, it projects them. For example, gold’s strength last year projected future US$ weakness against other currencies. The fact that the US$ gold price has just made a new all-time high projects future weakness in the DX.

The way that the DX’s true fundamentals are expected to evolve over the months ahead (they are expected to remain bearish) and the paths taken by the DX following comparable highs in September-2022 and January-2017 also point to additional downside.

However, thanks to the recent collapse it’s likely that the bulk of the decline is in the past.

We have had and continue to have the mid-90s in mind as a target for the DX’s ultimate cycle low. This target may have seemed unreasonably bearish a few months ago, but it is only a few points below the current level. At the same time, a countertrend rebound could result in the DX returning to the 104-105 range.

Further to the above, we are now short-term and intermediate-term neutral on the DX. The ultimate cycle low probably won’t be set until the final few months of this year, but the rebound potential is now at least as large as the remaining downside potential.

[This blog post is an excerpt from a commentary published at www.speculative-investor.com on 6th April 2024]

The effects on the financial markets of Trump’s 2nd April announcement were similar to, albeit not quite as extreme as, the effects of the COVID lockdowns in March of 2020. Like the COVID lockdowns, what was announced on 2nd April constituted a massive government intervention that will disrupt global commerce and that to some extent came as a shock. Markets obviously were expecting widespread tariffs to be announced, but it is clear by the reaction that many market participants were surprised by the magnitude of the tariffs and/or the arbitrary way in which the tariff rates were determined.

Due to the adverse consequences for global economic growth, commodity prices plunged along with equity prices over the final two trading days of last week. For some industrial commodities the current price levels are not surprising to us in that we expected to see new cycle lows, but what we expected to unfold over the next few months occurred over the space of just two days.

For example, we expected that the rebound in the oil price from its early-March low would be followed by a decline to new cycle (multi-year) lows within the next few months, but the following weekly chart shows that last week the oil price plunged from a 1-month high to its lowest level in almost four years. In oil’s case, the negative reaction to the growth shock that potentially will stem from the tariffs was exacerbated by an OPEC announcement that the first three months of its planned production increases will be lumped together, meaning that OPEC oil production will increase by 411K barrels/day rather than the expected 135K barrels/day next month.

The oil price probably hasn’t bottomed, but by plunging to a new cycle low last week it has done as much as we thought it would do prior to the start of a cyclical upward trend.

For another example, a week ago we wrote that we perceived a lot of downside risk in the copper price, but we didn’t expect the downside risk to materialise immediately. Instead, the copper price fell 14% last week and removed any doubt that a multi-month price top was set via the spike up to US$5.40 during the preceding week.

The commodity and equity markets reversed course following their lockdown-related crashes in March-April of 2020 due to 1) the extent to which they were stretched to the downside and 2) the upward price pressure exerted by unprecedented monetary intervention. Based on Powell’s words late last week, the Fed is not close to doing anything supportive on the monetary front. Therefore, currently there is no reason to expect anything more bullish than a countertrend rebound.