Is The Gold Squeeze Here?

1.) GOLD – Over the past three weeks, speculators bought a record $22.2 billion of gold futures, the largest notional increase in more than a decade. The move was driven by $13.6 billion of new longs and $8.6 billion of short covering (also buys), pushing net length to the 93rd percentile on a two-year lookback. What we’re starting to see develop now is that “short squeeze” I alluded to earlier in the month. Gold likely has room to move higher, but first it needs to wash out the currently overbought reading. It can do that with a consolidation or a slight pullback. If it pulls back, the $4,450 area is a decent spot to expect buying to show up again.

2.) INFLATE – A few weeks ago, I wrote about a simple idea: inflate or die. The basic premise was that when a financial system accumulates enough debt, policymakers eventually face an ugly choice: allow the system to deleverage, or keep finding ways to inflate it. History tells us that governments prefer to inflate, and last week we crossed another milestone… U.S. public debt has now reached $40 trillion. Yippee. We won’t overcomplicate this or make it political… it doesn’t matter who’s “in power.” The fact is that debt keeps rising. Yes, that is a very large number. But the more interesting question is how it ever gets paid back. There are two ways to default on a lender (remember these bonds are owned by nations, corporations, pensions, and individuals). You can refuse to give them their dollars back, or you can give them their dollars back after destroying what those dollars can buy. The second method is considerably more politically convenient. This is why inflation is not likely some temporary phenomenon that policymakers will eventually defeat and that we’ll all go back to the world we knew before 2020. Inflation is part of the solution to the debt problem. It’s not a bug; it’s a feature. Now, I’m not talking about hyperinflation roaring in, but a persistent incentive to make tomorrow’s dollar worth less than today’s dollar. Why? Because the debt is denominated in dollars. And if the value of those dollars falls, the real value of the debt falls with it. This is not a death knell to markets. They’ve been functioning through the growth of this debt for decades. Markets care about the acceleration or deceleration of growth and inflation. And they tend to do just fine when both are accelerating. But as this debt progresses higher, “real things” continue to get better… Gold. Silver. Copper. Oil. Natural gas. Uranium. Bitcoin. Agriculture. Land. Infrastructure (which includes tech growth and AI infrastructure). Businesses that produce things civilization physically cannot function without. We have built a financial system containing enormous quantities of paper claims against a world containing a finite quantity of real things. Stocks that represent a claim on the earnings of companies that build “real things” are also important.

3.) EARNINGS – It’s been said that earnings are the mother's milk of the market. In other words, they are needed for growth. Well, if that remains true, and it has been, things look just fine as forward earnings estimates remain strong.