Edward Dowd came on Commodity Culture with gold and silver taking a beating and Treasury yields through 5 percent across the curve, and he refused the scare.
He has been calling for gold to consolidate for the better part of a year and then resume the march to $10,000. The recent hit, with gold still in the $4,000s, is that consolidation.
“As someone who has been calling for gold to consolidate for better part of a year and then resume its march towards 10,000, this doesn’t concern me.”
The yield story, he said, is an excuse more than a thesis. Rising coupons make non yielding metal look stupid until the real economy chokes. Yields had been falling on a slowdown. Then the war hit, oil took off, and yields followed. Short term, oil and yields are about 70 percent correlated. Long term they are not. Once yields reach the point that kills lending, business credit contracts, the AI buildout gets more expensive to finance, and growth rolls over. He thinks that inflection is close. One more hike is still in the Fed, then a reversal inside six months.
Kevin Warsh’s quarter point hike is the error in that sequence. Dowd’s tool is simple. Compare the three month bill with the midpoint of the funds rate. About 25 basis points above, and a hike is priced. Two weeks before the meeting the bill took off, because the market decided there would be no peace deal before the midterms and the oil shock might turn structural. Warsh, new in the chair and in need of credibility, followed. Dowd thinks he should have held.
“I think when we look back in hindsight, this is going to be a policy error.”
The party that hike threatens is the only party in town. Housing has stalled, and mortgage rates make it worse. Yields are widening on neoclouds and hyperscalers. Private credit is seeing outflows. China just reported weak industrial profits. Credit, he said, is starting to ask questions, and that is what usually ends the party.
“It just feels to me the credit markets are starting to ask questions and that’s what usually ends the party.”
The road to $10,000 is not a straight line from here. It is born in the next crisis. Growth slows, credit contracts, risk assets sell off, and the Fed is pressed to print. Gold’s catalyst is that print, once the disinflationary scare hits. He pointed at 2008. Oil ran from something like $80 to $140 in six months, peaked in June, and finished an already weak consumer. Yields rose into it. The European Central Bank hiked on the spike. Then the collapse was fast. Oil is a tax and a supply shock, not a 1970s demand boom with baby boomers and union cost of living clauses. Demand destruction comes. It is hard to see now.
“When this happens, it’s going to happen fast and I think gold is going to benefit from what happens during the crisis.”
The rest of the hour is the pain before that bid. A debt crunch that can crash markets. Private credit breaking. Real estate stuck. A stock market overconcentrated in one trade. A possible return to value once that trade breaks. China in trouble, and a US China relationship that does not rescue either side. He also called the AI doomsday talk a psyop and asked why COVID shot harms are still ignored and whether anyone faces justice. None of that changes the metal call. The drop is not the end of the road. The road runs through a credit break, a policy error already made, and a printer the Fed will reach for when the scare arrives.
