Wealthion Macro Bites 3-20

Spot gold is headed for its largest weekly loss in six years (-7%). Despite media eulogies for the precious metal bull market, spot gold at Thursday’s close ($4,650) is still up $330 ytd (+7.6%). We believe the kneejerk sequence of rising oil prices, rising inflation expectations and subsequent pricing of incremental global central bank rate hikes is fundamentally misguided. Given extreme leverage in the global financial system, we expect any sustained energy shock to quickly destabilize trillions-of-dollars of shaky credits leading to resumption of aggressive central bank easing. We see gold’s recent selloff as a classic and highly fortuitous buying opportunity.

Israel said it would no longer target energy infrastructure after an attack on Iran’s massive South Pars gas field (part of the world’s largest natural gas deposit) sparked retaliatory strikes and a rebuke from President Trump. Nonetheless, Iran pressed ahead with its attacks on Arab states in the Persian Gulf. Kuwait shut several units of its Al Ahmadi refinery following multiple missile strikes; the UAE and Saudi Arabia intercepted missiles and drones on Thursday night; and Bahrain reported a fire at a warehouse. Ominously, Qatar reported that almost a fifth of its LNG production has been knocked out for as long as five years.

Since Wednesday’s Israeli attack of the South Pars gas field and Iranian strike of Qatar’s Ras Laffan LNG facility, 2-year Treasury yields have soared 19bps (3.865%). In addition to the Defense Department’s $838.7B annual budget (approved Jan.) the Pentagon is asking Congress for an additional $200B to replenish ammunition and other supplies depleted by the Iranian conflict.

President Trump and Japanese Prime Minister Takaichi announced GE and Hitachi will build 2 BWRX-300 modular nuclear reactors in Tennessee and Alabama at a cost of up to $40B. Japan will also invest up to $33B in natural gas power plants in Pennsylvania and Texas.

During Takaichi’s White House visit, President Trump’s answer to a Japanese journalist’s question raised eyebrows, including the Prime Minister’s herself. Asked why the U.S. had not warned its allies it was going to strike Iran on 2/28, Trump responded toward Takaichi, “Who knows better about surprise than Japan. Why didn’t you tell me about Pearl Harbor?”

Chinese customs data released Friday discloses China’s overseas purchases of silver during January/February reached 790t (8-year high) including 470t in February (highest Feb. ever).

Volatility watch: Roughly $5.7 trillion in notional options tied to individual U.S. stocks, indexes and ETF’s are set to expire today in the quarterly “triple witching” event, the largest March expiry since 1996 (Citigroup). The total amount includes $4.1T in index contracts, $772B in ETF’s and $875B in single-stock options.

European bonds continue their selloff, with yields rising 3bps-7bps across the board. 10-year Treasury yield +4.3bps (4.294%). Euro Stoxx 50 +0.2%, S&P futures -0.3% and Nasdaq futures -0.5%. DXY dollar index +0.15%, spot gold +0.4% and spot silver -0.8%.

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