Wealthion Macro Bites 2-2-26

When the smoke cleared in Friday trading, spot gold declined $481 (8.9%) on the day to $4,894 and spot silver fell $30.50 (-26.3%) to $85.20. In early Monday trading, gold touched a low of $4,403 (down an additional 10%) before rebounding to $4,785 by 8am ET; and silver touched a low of $71.40 (-14%) before rebounding to $83.30 by 8am ET.

President Trump’s nomination of ex-Governor Kevin Warsh as Fed Chair is widely cited as the specific trigger for Friday’s precious metal declines (including concerns gold’s $300, 20-minute flash crash near Thursday’s open reflected a troubling pattern of markets frontrunning leaked Trump announcements). During Warsh’s term as Governor (’06-’11), he was a vocal inflation hawk and critic of the Fed’s radical balance sheet growth. Warsh’s nomination clearly short-circuited consensus expectations for an ultra-dovish Trump pick (along the lines of Governor Mirran, NEC Director Hassett or recently dovish Fed Governor Waller). During Chair Bernanke’s QE launch, Warsh objected in ’10 FOMC transcripts, “My views are increasingly out of step with the views of most people around this table. The path that you’re leading us to, Mr. Chairman, is not my preferred path forward.”

Scorching recent gains in gold and silver have been attributed to momentum meme-type buying, exploding options volumes, CTA buying and rampant speculative flows, especially in China (where regulators halted trading of five leading commodity funds on Friday). Demonstrating recent declines are more reflective of unwinding leverage and speculation rather than shifting investor sentiment, despite the fact that the iShares Silver Trust (SLV) recorded $40B in Friday turnover, outstanding shares remained flat at 500.5M. Similarly, while GLD traded $38.5B in Friday volume, outstanding shares actually increased slightly (from 379.9M to 380.1M shares).

On Monday, the Trump administration announced plans for a strategic critical minerals stockpile called Project Vault, with $12B in seed money ($10B U.S. Export-Import Bank loan and $1.67B in private capital) and participation from more than a dozen companies (incl. GM, BA, GLW, STLA, GEV and 3 commodity trading houses). While the U.S. already maintains critical minerals stockpiles for defense needs, the new stockpile will be for industrial and civilian needs (such as automotive, aerospace, energy, cellphones, batteries). Ex-Im’s board will vote on Monday to authorize the record-setting 15-year loan.

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