Will The Fed Crash Markets? Warning Signs 'Flashing Red' | Adrian Day
Summary
Market Outlook: The podcast discusses the Federal Reserve's potential rate cuts, with a base case of 50 basis points but not ruling out 75, amidst higher inflation and a weakening labor market.
Gold Investment: Gold stocks are expected to outperform bullion, with a significant increase in gold prices predicted, driven by central bank purchases and economic conditions favoring gold.
Economic Indicators: Key indicators such as weaker payroll numbers, higher inflation, and a declining dollar suggest a challenging environment for the Fed, potentially leading to more rate cuts.
Currency Trends: The dollar's decline is highlighted as the largest first-half drop since 1973, with central banks holding more gold than US Treasuries for the first time since 1996, indicating a shift away from the dollar.
Investment Risks: Warning signs are "flashing red" in the stock market, with overvalued leaders and insider selling suggesting potential corrections or rotations into undervalued sectors like commodities and small-cap stocks.
Federal Reserve Strategy: The Fed's focus on inflation and labor market data, which is often outdated, is critiqued, with discussions on whether quantitative easing might be reintroduced.
Mining Stocks: Mining stocks, particularly gold miners, are seen as undervalued relative to gold's price, with potential for significant leverage and growth as market participation increases.
Alternative Investments: The entrance of stable coin companies into the gold market is noted as an exciting development, potentially bringing new interest and investment into the sector.
Transcript
All the warning signs are flashing red. It's just a matter of how long be how long can the market continue high. The gold stocks will do significantly better than bullion. Well, the Fed is increasingly boxed into a corner. My base case would be 50, but I don't think 75 is off the table. I I truly find it difficult to envisage a scenario in the next 12 months where gold will be lower, and that makes me nervous. [Applause] [Music] go over some economic data and get the outlook for Fed policy, economic growth and stocks. Adrien Day joins us right now. He is a president of Adrian Day Asset Management and the portfolio manager of the Europacific Asset or Gold Fund. Thank you for coming on the show. I uh >> Thank you very much for having me today. >> I look forward to every time seeing you in person. It's just different. I know we talk online all the time. I haven't spoken to you in a while. Last time I spoke to you, gold was not at $3,600. It is now. I get your reaction to that. Let me get your reaction to this piece of news. The dollar is set for the steepest weekly drop in a month. This comes a week, we're speaking a week before the Fed meeting. The Fed meeting is on the 17th of September. Different forecasts show different, you know, rate cuts throughout the year where different levels of rate cuts throughout the year. Morgan Stanley, for example, is now revising their forecast to three cuts this year, up from two, but the consensus is that they will cut at least 25 basis points next year. This comes as inflation came in this this week at 2.9%. Which is higher than the previous month at 2.7%. So it's beginning to show a trend of higher inflation throughout the year. And uh as we've seen earlier in the week as well, payroll numbers came in weaker than expected. Initial claims data came in that was the highest in four years. Weekly initial claims highest in four years. At the same time, the BLS has revised down their March 2024 to March 2025 payroll numbers by 911. Almost a million jobs down. So, weakening labor, higher inflation, lower dollar. What is the Fed going to do in this environment, you think? Well, the Fed is increasingly boxed into a corner obviously um because of you know the mandate to try to keep rates high to stifle inflation but uh help help the economy and particularly the labor market which is what Jerome Powell seems to be mo more focused on the labor market rather than other other aspects of the economy. I mean personally I think they should have had a quarter point cut already that would have helped ease some of the pressure. Um, [Music] >> as I say, they're boxing to a corner. So, my sense is that they're going to cut a quarter of a point. Um, and we're probably going to get another one before the end of the year. I'm not sure we're going to see three cuts before the end of the year. I'm not sure we're going to see a half point. Some people are talking about a half point next week. I I tend to be relatively cautious on that. I would think we get quarter of a point. Powell is still going to talk in the press uh about in the press conference. he's still going to focus on inflation. Um uh but but clearly clearly what's happened since the last Fed meeting and the last Fed conference I mean what and last uh uh uh press conference clearly the labor market you can't hide the fact that the labor market is weaker. Now you know when you and I had dinner we talked about the labor market. I've been saying for months that I think the labor market is a lot lot weaker than just a headline new jobs and um unemployment number would suggest a lot >> well you turned out to be right how did you >> but there's but you well I'll mention but but what I'm saying is >> Powell two was it two months ago now he kept referring to the labor market as solid you you cannot save it anymore so that to me is the biggest thing that that you that's clearly in front of of us all. Well, you know, it's it's as I said, it's just lifting the bonnet or the hood. And you look at you look at the characterization of the jobs, you know, a majority of jobs being government jobs or part-time jobs. You look at people who were accepting part-time jobs and over 3/4 of people taking part-time jobs had been looking for a full-time job. So all of these things were s and and then the other thing was continuing claims. So while new claims were not that bad, I mean they have been recently but were not bad but continuing claims were bad and the length of time it took people who who lost a job to get a new job was just getting extended and extended and extended. So those were the things really just just looking on looking behind the headline number it was pretty clear that it was not a strong labor market and then anecdotally just talking to talking to people um yeah let's suppose they cut by 75 basis points which is something not maybe immediately but maybe this year right would that actually help the labor market? >> That's a good point. Um, and 75% I mean my base case would be 50, but I don't think 75 is off the table. Um, I'm not sure if it I mean obviously everything is helpful at the incrementally. It's all helpful at the margin, but I don't think a 25 or 50 is going to do anything for the labor market. 75 uh, you know, maybe does a little bit. >> Well, here's my other side of the question here. What will 75 or even a 50 basis point cut do to inflation? >> Well, you know, I don't think inflation's going to run away from us, but I mean, it's clear if you look at the really the last year, um it's it's been st it's it's been stubborn ever since we had the big drop postco uh the CPI and the PPI have been stubborn and they've been inching up for the last what five six months now. they've just been inching up and I don't think that has an awful lot to do with terrorists frankly. Um the problem is if unemployment moves up meaningfully then people have less money to spend and so if there's less demand for goods and services that acts as a bit of a break on on uh prices going up on inflation what's commonly called inflation. So, I'm not expecting inflation to run away, but you know, at the current level, we're almost 50% above the Fed's own target. >> Yeah. >> And that's if we believe the Fed's numbers. >> Sure. >> Or the government's numbers. So, we're already 50% above the target. Um, and and I do think again, Powell is definitely focused on inflation as much as he's focused on on the labor market. So, I don't think he wants to be too aggressive at this point. >> I've heard the opinion that the real reason Trump wants rates lower is because of this $1 trillion interest expense that they're not getting away from. That's higher than the military spending now, defense spending. >> And so, it's going to look very bad for their mandate to lower the deficit when they've got a $1 trillion, you know, burning hole in their pockets every year just from interest expenses, >> right? No, absolutely. And I mean I' I've always said that, you know, that's one of the main reasons that rates just simply have to come down. Uh because we all know this or increasingly we all know it, but you look at all of the bills that Janet Yellen issued um and and she only issued bills she issued very very little at the long end. And so if you've got a five-year bill or a three-month bill that was issued three or five years ago that's coming due now, we've got an average interest expense I think now of about three a little under 3 and a half% I think is the average right now latest number I saw. Well, anything that was issued 3 or 5 years ago rolling over today is going to be at a higher interest rate. >> Yes. And so just without doing anything without extending the terms and maturities or anything whatever you do just by the bills rolling over that interest that interest expense is going to move up and that's without the deficit going up or anything else. I mean I and and as you know Scott Bessant the Treasury Secretary has been using all of the you know bag of tricks that that uh Treasury Secretaries use and he's been he's employed a couple of new ones you know the stable coin what was it called the Genius Act uh to encourage and have light regulation on stable coins that are fully backed by treasuries. No that's a clever way that's one way to get more demand for treasuries. How much does that do this year? I really don't know because you've got to set up your your coin presumably that takes a bit of time. You've got to get it through the regulators and get approved and then you've got to market it. So I don't know how much I really don't know how much you get out of that this year. Let's just say 250 billion to be nice to them. Uh the reduction in reserve requirements on the banks. The whole point of that was to get banks to buy more treasuries. But I don't think banks want to buy more treasuries. They're underwater on the treasuries they own cuz they're holding them to maturity. They're underwater on what they own. Jamie Diamond, CEO of Morgan Chase, has said he has no intention of buying or has no interest, sorry, no interest in buying more treasuries. But but again, that was one of the tricks that they were trying to use, reduce the uh reserve requirement and buy some more treasuries. But maybe that adds, you know, 50 billion maybe. Um, and and there's other little tricks and gimmicks that they're using, but they're not getting up. They're not getting close to how much how much is is going to be sold between now and the end of the year. And I think the bigger story than what does the Fed cut rates by a quarter of a percent or half a percent, the bigger story is will the Fed institute QE again? They won't call it QE, of course. And Powell has said quite firmly last time, he said, "It's not the Fed's business. We don't think about the deficit." He said, "It's not our business. That's the, you know, the administration's problem or business." You know, that's just, if I may say, BS. Of course, they think about the deficit. They might be blaming the others, Congress and the administration for the deficit, but of course they think about it. And so I think the biggest story is will the Fed turned to QA to mop up. >> Show you this remarkable tweet that uh Trump made. Well, not tweet. He posted this on Truth Social. The Fed had followed what we published. If the Fed had double what we published, they would have raised rates in early 2021. The entire organization is broken. It needs to be fixed. They need to use modern sources of information. We strongly disagree with Ken Griffin. Uh we think incompetence >> is more important than to defend theoretical independence. He >> too late. I think he's talking about power has done a terrible job since he adapted a two target. >> It's too low. It's too rigid. They follow data that's years delayed. They don't believe that money supply matters is like the pope not believing in Jesus. We think that's a bigger bigger problem than this notion that they are dependent. Anyway, he doesn't want the Fed to be dependent as you know independent as you know and he wants lower rates. But just evaluate that remarkable attack. Scoped at the same time was also he tweeted a couple days ago. Scoped tweeted that the Fed is singularly at fault for the rising inequality in America. Uh singularly at fault. I I I absolutely think the Fed is at fault for the widening. I and I gave a speech back in 2008 where I said this this these policies will lead to widening inequality. So you didn't have to be a genius to see it. And I think they're absolutely right. Fed's policies are widening the the inequality. I'm I'm not going to talk about exactly what Trump said and everything, but I think that that comment about relying on data that's late is absolutely true. Again, I've been saying that for months. the when when the Fed says and Powell says it, Bernani said it, when the Fed says we're data dependent, what that means is we're looking at data that already reflects something that's happened. If you're looking at labor market data, you're looking at stuff that reflects maybe 6 weeks ago. right >> now when you have se the first and second revisions and it's only the third revision that is anywhere close to reality then you're looking at data that's already 3 or 4 months old before you get an accurate picture if if you if you were to if you were to act on the labor market reports when they first come out knowing that they're going to be revised twice but you you'd be you'd be acting on wrong information right >> yes if you only act on the first month's numbers. And so I've I and other people like Daniela de Martino Booth and I don't want to put words in other people's mouths, but a lot of people have been talking about um the the fact that relying on data that is revised always revised and massively revised for one or two months means that you are always looking at a situation that existed 3 months ago. Yes, >> I have made the comment not facitiously by the way that some of those 400 PhDs sitting in the Eckles building, the Fed's office in Washington DC could be better employed by picking up the phone and calling companies and asking them what's happening or listening to conference calls >> or reading their own freaking beige book. That's the Federal Reserve's beige book on the state of the economy. I don't think the Fed takes any notice of that. They wait for the data to come out, which is always late. >> This is just completely off topic, but uh I just funny anecdote, not anecdote, but piece of news this week. The Labor Department is now hiring a watchdog group to evaluate how the BLS is collecting data after they got rid of their um commissioner. So, >> well, I'm not commenting on I mean, I don't know whether she should should have been fired the way she was fired, but clearly that I've said this to you before in our last conference. I'm not suggesting it's a political hack job to try and make Trump look bad or anything like that. But clearly there's an there's a problem with their methodology. >> Clearly 900 900,000 jobs that we said were created, oops, they weren't. and a year before 800,000 that we thought were created. Oops, they weren't. Well, there's something wrong with their methodology. >> True. Very good point. So, the dollar the fact that this is another opinion that I've heard that the the fact that the the White House is at open war with the Federal Reserve does not spell confidence for the DXY. >> Correct. >> It's already down what 12 13% a year to date. This decline is likely to continue, says this theory. What's your view? >> Yeah. Well, to me, frankly, you had in the first half of a year and and obviously we all look at calendar quarters and years, which is, you know, but in the first half of a year, that was the uh largest dollar decline since uh 1973. That's pretty astonishing when you think about it. The the largest first half decline uh in what is that 50 years. I honestly thought there'd be a bounce. the the fact that there has not been any kind of meaningful bounce. There was a little bounce in mid August, you saw that um and then it quickly reversed. The fact that there has not been a bounce after a big decline like that and now further declines suggests to me that the the appetite for dollars is is very very weak. And and let's remember for 40 or 50 years foreigners have been just until the last couple of years have just been steadily accumulating dollars, >> you know, and and it might be, you know, central banks, but it's also asset managers who were putting, you know, if you're a British asset manager or Swiss asset manager, a lot of your assets are put into the US and that appetite has gone away. So if they just stop buying, we see a decline in the dollar. But you know, after you've had to I'm thinking of as an asset manager now, you you've had maybe you're a British asset manager and you've had 50 or 60% of your assets in the US. Uh you've got 50 or 60% of your assets in the US. If you buy a US stock, you're buying the dollar, of course, right? Um, you buy the dollar to buy the effectively to buy the the stock. You've had the strongest stock market uh in the world. >> Yeah. >> Um, now you're getting sense that maybe they're not so keen on having us in their market. Maybe you're nervous about the dollar, maybe you're nervous about the stock market, but for whatever reason, it's not a bad idea to reduce your exposure to the US at this point. And you multiply that across across the board. So yeah, I mean I think the dollar uh the dollar is going to continue to be weak. And remember the thing is to the extent to the extent that the US loses its reserve currency status and it doesn't have to it's not either it's the reserve currency or it's not. You know that was the way with the pound up until 1945 where we switched from the pound to the dollar. But it doesn't have to be all or nothing. And of course every you know people smarter than I am talking about multipolar world and the bipolar world and so on. So the dollar can lose can partially lose its reserve currency if that makes sense and to the to the extent it loses its reserve currency. All of the dollars that have ever been created still exist, but to the extent that it loses that reserve currency, those dollars will start to come back to the US. >> Yeah, that's a great point. That leads to me leads me to my next question. Foreign central banks hold more gold than treasuries. That's a trend that's been recent, right? This is for the first time since 1996. We saw this yellow line u overtake the blue line which is US Treasury holdings as a percentage of total foreign reserves. To your earlier point, what would happen for this current trend to reverse? >> Yeah. I think there's a problem with that graph to be honest. >> Okay. Um and and you know that might be looking I don't want to get too technical into it but if we're looking at dollars the dollar was 75% of foreign central bank of central banks foreign reserves back in 2000. Okay. And that graph doesn't doesn't show that. >> I see. >> Um if if you look at dollar as a percent the dollar as a percentage of central bank reserves it's still about 47%. down from 75% at the beginning of the of the of the of the century um you know in 1999. But you know there's no question that that the percentage of dollar reserves has gone down dramatically right 75% in 1999 65% 5 years ago 55% 3 years ago and now under 50%. So it's been a long-term trend. Um, and I think it's fair to say that nothing Trump has done has stopped or reversed the trend, but it didn't start with him. It's a long-term trend. And similarly, in the last several years, four or five years, we've had that trend towards higher gold. Um and and and again that's a critical point because what's happening is gold is replacing the dollar as the central reserve asset which is part of of of being a reserve currency part of the other part is being the the excuse me the currency in which trading is done that's also the percentage of world trade that is is is conducted in the dollar has also declined not just this year but over the last several years. And so even though most world trade is still conducted in the dollar and even though the dollar is still the largest reserve asset, the trend is definitely you you know it the trend is definitely towards a reduction and that means that the dollar is not it's losing some of its reserve status. >> Well, let me just present a bare case for the gold price then. So suppose um central banks have bought enough gold right this trend isn't dependent on in fact the 10-year real interest rate um as we both saw in the keynote presentation here has been trending up alongside gold so it's not due to the fact that interest rates in real terms have been declining in fact quite the opposite central banks buying because if they want it because of dolization and moving away from the Trump policies once that trend finishes that's the end of the gold price run Well, no, it's an interesting point and it it the question is when do when do central banks stop buying dollars? But you mentioned Trump policies is that's the thing I want to really emphasize. >> This move didn't happen with Trump. It's been going on for years before that. We know the weaponization of the dollar. Everybody talks about the weaponization of the dollar as though it started with the seizure of Russian central bank assets which was of course under the last administration. But it's been going on for years where the US is increasingly, if I can say it without offending people, increasingly acting as a bully in the world. When you see a Spanish bank that lends I mean a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a French bank that lends money to a Spanish company to build a hotel in Cuba, which is legal under Spanish law, legal under French law, legal under EU law, legal under UN law, and legal under Cuban law for what that's worth. But the US finds the French bank for having a tmerity to lend to a company that's investing in Cuba because it breaks US law and they can enforce that because the bank use the Swift code, the Swift system. That's just one example. But so what I'm saying is the US has been acting like this for years. That's 15 years ago. So nothing Trump has done has slowed it down or reversed it. But I want to emphasize it didn't start with Trump. Now that's not a political point I'm making. The point I'm making is that the willingness or eagerness of foreigners to divest from the dollar is a fundamental thing. It's not something they're saying, well gosh, we've only got three more years of Trump. Let's just hold on. And so so to answer that to get back to the point 47 it's 47 12% was the last number that came out on the amount of dollars in well foreign reserves we're talking foreign reserves of central banks so under half. Now, if a reason you're diversifying, you want to diversify away from excessive concentration in an asset about which you're nervous exacerbated by weaponization of a dollar, the question is what is too much or what is what is what is enough? If you're really worried about weaponization, you know, if you're Kazakhstan or, you know, um you're you're a country that that potentially is is at is at risk, I would argue anything is too much. >> Mhm. >> Right. If you're simply worried about, well, the dollar deficit um you know, the the the the weakness of the dollar because of the twin deficits, um maybe 47% is still too much. Yeah. >> Um, so I think we've got a long way to go before central banks say, "Okay, I'm comfortable with the dollar assets that I hold." And of course, as the dollar goes down, partly because central banks aren't buying anymore and some of them are selling, as the dollar goes down, that only makes a normal person say, "hm, maybe I don't want as much as I have." So, now that markets I'm talking about not just gold and silver, which we'll get into just a bit, but Bitcoin stocks. Now that markets have run up so high in 2025, what are the key data points or trends you're looking for for either um a continuation of this bull rally or a reversal? In other words, what are you basing your investment decisions on right now? >> Yeah. Well, I think one thing definitely will be uh weakness in the economy and how weak the economy is because whatever people want to do, if they don't have the money, they can't do it, right? Um that definitely is one thing. Um I I mean I I think the US well I think I don't know if this was the question but I think the US stock market is is potentially reaching the point the tipping point where where it will where the leaders will roll over and we'll see a a correction in the S&P. Uh I'm not looking for a crash or collapse but we'll probably get rotation out of those leaders. Valuation is obviously one factor but valuation you could have said that a year ago. Market breath is another factor but again you could have said that a year ago. Now the market breath is worse today than it was 12 months ago but still uh those things you know the valuations and the market breath are just continuing to get worse. The other factor of course is insider selling. Um when you see uh an extreme ratio which we're seeing now an extreme ratio of inside buying to insider selling that is another another warning flag. So I think all the warning signs are flashing red. Um it's just a matter of how long be how long can the market continue high and and I don't look at it as a prediction. I look at it on a matter of riskreward and so I just don't think there's so much reward left in the market now but the higher we go the more overvalued we get >> the more risk there is and particularly if you look at it as a starting point if you start from a much higher valuation your returns over 10 or 15 years are inevitably going to be lower than if you start from a lower valuation. When you say rotation, what could they be rotating to? >> Things things that have lagged and things that are undervalued. So that would be small smaller cap stocks, uh value stocks that have lagged, uh income stocks that have lagged, uh commodities, of course, that have lagged tremendously. I mean, the ratio, we we've had a big run in in commodities recently, particularly gold and silver. But if you go back to let's just look at it in the long term and you look at a 100red-year graph of commodities and commodity stocks, commodities number one, commodity stocks number two versus financial stocks, so the S&P or the world uh the M MCI global index, we're at 100redyear lows, 100redyear lows. And if you look at a graph, yes, there's been a little bit of a tick up in the last three months, but essentially we're at 100year lows. >> So those those have definitely lagged. >> Okay. So, uh stock market, the leaders are overvalued a bit. What about the bond market? If you're of the belief that maybe inflation will continue to rise, will the 10 year with the long end of the curve follow inflation? I think there's there's so much I you know I'm first of all I'm not an expert on the bond market but I think there's so many factors that go into that and part of it it really depends on what the Fed does. >> Okay, >> you know does the Fed do yield yield curve control and try to bring the long end down or does it just mop up as many short-term treasuries as as it needs to mop up? I I I I don't know what the Fed's going to do, but I think a large a large part of the answer to your question is what the Fed chooses to do. >> Well, you are an expert on the mining stocks. Let's talk about mining now. Uh the fact that people have told me, look, first you got usually what happens is the gold price moves up, then you got the seniors, and then the juniors start to move with it. That's exactly what's starting to happen. Now, does that then signal the end of the bull market? >> No, absolutely not. And you're absolutely right. what what that typically happens. But remember the really important thing for people to to focus on is that US investors, the ordinary everyday US investor, the ordinary everyday registered investment advisor who's not a gold bugger or a gold expert, um the family offices, um they have only just started moving towards gold. And so when the dentist in Oklahoma calls his broker and says, you know, hey Joe, I think we ought to have a little bit in gold and Joe who knows nothing about gold and says, do you really think so, Fred? Yes, I really want to. What does he buy? He doesn't buy the stocks that are at this conference. He buys Barrack or Newmont or the GDX, you know, he buys the big stuff. So I think for I think the larger companies still have a lot of room to go. Normally, you're right. Normally after three years of gold appreciation and 90% appreciation in the stocks, those stocks would be overvalued and it would be time to move down. But we haven't had the we haven't had the market participation until just the last few weeks. And if you look at those big cap stocks, they are still good value. >> Yeah. Now, after 90% increase in the price, they're not as good value as they were at the beginning of the year. >> Yeah. >> But I think we've talked about this before. Remember, you know, Oscar Wild said people, you know, too many people focus on price, not value. So, when the price of gold moves up, the value of the reserves in the ground move up. >> Sure. >> The value of the production moves up. When the margins expand the way they've expanded, look at the margin expansion. The oil price has not gone up anywhere near as much or is flat. >> So the margin expansion has been tremendous. Companies with all in sustaining costs of 1850 or 1900 or 2,000 even, they're making, you know, $1,500 um um margin and so your cash flows are going up. Well, when that happens, your price to book value and your price to NAV and your price to cash flow, >> those valuations don't go up anywhere near as much as the price of the stocks have gone up. >> Mhm. >> And so the stocks, if you look at a stock like IGO, which is my favorite example, because there's nothing wrong with ano, right? You can't say, "Oh, well, it's cheap because like you can say barrack, it's cheap because of Pakistan or Mali." So you look at AGO and you look at their price to cash flow, right? Their price to cash flow today is a little higher than it was last year, but other than last year, it's the lowest price to cash flow has been for 10 years. So these stocks on a historic basis, on their own historic valuation metric, are not expensive at all. >> Okay. I I I understand what you're saying. Uh the I don't mean to be faciticious with this next one, but I everybody I've talked to at this conference agrees with you. A contrarian might say, "Well, that's a topic indicator." >> You know what? It's interesting you say that because I have thought >> to myself and I've had conversations with people. >> Yeah. >> The fact that I cannot think of a longterm bare case for gold makes me very very nervous. >> Even at $3,600 >> I Yes. I think we might get a correction. >> As I said, if if Powell tries to act hish, although frankly I think the market takes less and less notice of the Fed. Yeah. >> Um but if if they try to act hawkish that there might be a a correction might be might be a pullback not a correction but I find it difficult to think I I truly find it difficult to envisionage a scenario in the next 12 months where gold will be lower and that makes me nervous. >> It makes you nervous. What about how do you feel about silver? Does that if you feel nervous about gold then you should probably feel more nervous about silver's run up. >> Yeah. No, absolutely. And and silver silver of course can be a lot more volatile uh than than gold for for a lot of reasons. Um you know because of the holders of of of silver. I mean the central banks aren't going to suddenly reverse course and start dumping it. Uh you you obviously saw the World Central Bank um uh uh self they have a self-interest of course but the world central bank survey of of central banks >> central bank >> sorry the world gold council I'm sorry >> yes >> the world gold council survey of central banks >> and not one that answered the survey said they intended reducing their gold position next year and about half of them said they intended increasing their gold position over the next So the trend people can change their mind of course but but I think the trend for central banks is to continue to buy. Uh the trend for the economy in the US is towards a a an economic environment that is more conducive for gold. You know a weaker economy, lower interest rates, higher inflation, weaker dollar. That's an environment that is conducive to gold. It's difficult for me to envision frankly uh something that will happen over the next 12 months to make gold meaningfully lower. >> I interviewed you in Vancouver in January of this year. So, beginning of the year, I asked you uh closing off the interview then what you would prefer at the time, gold versus the miners, seniors versus the juniors. You had said the miners given how undervalued they were relative to the price of the bullion. you turned out to be correct given how far the GDX and GXJ have moved up relative to gold and every everything else this year. So that was a good call. I'll ask the same question to close off the conversation. Now with the GDX up 90%, are you still favoring the miners versus gold? >> Yes, I will I will always say what I always say. If you don't have any physical, you should have some physical. But physical is a savings. Physical is an insurance. Definitely the miners. And I'll tell you why. If you look at gold, gold has gone up 40%. In the last 18 months or something, um the gold stocks have gone up 90%. >> Mhm. >> So that's a little over 2 to1 le 2 to1 leverage. >> The last time gold went up 40%. The gold stacks have three and a half times leverage. We have not seen the leverage that we're used to seeing with the gold stocks. Yes, 90%. No one's complaining about that. is great. I don't want to >> short sellers are complaining. >> It's great. Yes, short sellers are complaining. But what I'm saying is we still have not seen because of a dramatic move in gold. I mean that's a very very dramatic gold move in gold we've seen in the last 3 years a very unusual move for gold. Gold is an asset that shouldn't double in 3 years. And the leverage that the gold stocks have shown so far has been significantly below the traditional leverage the gold stocks have shown to bullion. And the reason for that is obvious. It's because of the people who've been buying bullion. Central banks around the world, Chinese nonofficial buyers are not interested in buying North American gold stocks. And so the gold stocks have just not had that leverage. So yeah, I think the gold stocks will do significantly better than bullion. >> Good. Well, thank you very much. Uh, what are you looking at these days? Where can we follow you, Adrian? >> Well, the best place is adrianday.com. >> Yeah. >> And then we talk about the newsletter and the money management. >> What's next on your newsletter? What can people look forward to? >> What's next? >> Yeah. >> Uh, I've got to get through this show yet. >> What are you interested in these days? >> I Well, definitely the gold space. Uh, the the Tether investment into Elemental and the merger with EMX. That's very very we haven't talked about >> very briefly. Why why is why is a stable coin company getting into gold? >> Good question. Um that's a good question and and I mean I think they want they want access to gold whether it's physical gold or or gold royalties um uh you know to back their stable coins and they're very interested in gold. I think that is a very very exciting development because it brings a whole new set of eyeballs. You know, the crypto crowd has never even thought of gold or gold miners. It brings a whole new set of eyeballs onto um on onto this space. >> Okay. Well, we'll keep that on that development, but for now, follow Adrian Day at the website in the link down below. Thank you very much. >> Well, thank you, David. >> It's always a pleasure to see you in person. So happy we had this conversation. Thank you for watching. Don't forget to like and subscribe.
Will The Fed Crash Markets? Warning Signs 'Flashing Red' | Adrian Day
Summary
Transcript
All the warning signs are flashing red. It's just a matter of how long be how long can the market continue high. The gold stocks will do significantly better than bullion. Well, the Fed is increasingly boxed into a corner. My base case would be 50, but I don't think 75 is off the table. I I truly find it difficult to envisage a scenario in the next 12 months where gold will be lower, and that makes me nervous. [Applause] [Music] go over some economic data and get the outlook for Fed policy, economic growth and stocks. Adrien Day joins us right now. He is a president of Adrian Day Asset Management and the portfolio manager of the Europacific Asset or Gold Fund. Thank you for coming on the show. I uh >> Thank you very much for having me today. >> I look forward to every time seeing you in person. It's just different. I know we talk online all the time. I haven't spoken to you in a while. Last time I spoke to you, gold was not at $3,600. It is now. I get your reaction to that. Let me get your reaction to this piece of news. The dollar is set for the steepest weekly drop in a month. This comes a week, we're speaking a week before the Fed meeting. The Fed meeting is on the 17th of September. Different forecasts show different, you know, rate cuts throughout the year where different levels of rate cuts throughout the year. Morgan Stanley, for example, is now revising their forecast to three cuts this year, up from two, but the consensus is that they will cut at least 25 basis points next year. This comes as inflation came in this this week at 2.9%. Which is higher than the previous month at 2.7%. So it's beginning to show a trend of higher inflation throughout the year. And uh as we've seen earlier in the week as well, payroll numbers came in weaker than expected. Initial claims data came in that was the highest in four years. Weekly initial claims highest in four years. At the same time, the BLS has revised down their March 2024 to March 2025 payroll numbers by 911. Almost a million jobs down. So, weakening labor, higher inflation, lower dollar. What is the Fed going to do in this environment, you think? Well, the Fed is increasingly boxed into a corner obviously um because of you know the mandate to try to keep rates high to stifle inflation but uh help help the economy and particularly the labor market which is what Jerome Powell seems to be mo more focused on the labor market rather than other other aspects of the economy. I mean personally I think they should have had a quarter point cut already that would have helped ease some of the pressure. Um, [Music] >> as I say, they're boxing to a corner. So, my sense is that they're going to cut a quarter of a point. Um, and we're probably going to get another one before the end of the year. I'm not sure we're going to see three cuts before the end of the year. I'm not sure we're going to see a half point. Some people are talking about a half point next week. I I tend to be relatively cautious on that. I would think we get quarter of a point. Powell is still going to talk in the press uh about in the press conference. he's still going to focus on inflation. Um uh but but clearly clearly what's happened since the last Fed meeting and the last Fed conference I mean what and last uh uh uh press conference clearly the labor market you can't hide the fact that the labor market is weaker. Now you know when you and I had dinner we talked about the labor market. I've been saying for months that I think the labor market is a lot lot weaker than just a headline new jobs and um unemployment number would suggest a lot >> well you turned out to be right how did you >> but there's but you well I'll mention but but what I'm saying is >> Powell two was it two months ago now he kept referring to the labor market as solid you you cannot save it anymore so that to me is the biggest thing that that you that's clearly in front of of us all. Well, you know, it's it's as I said, it's just lifting the bonnet or the hood. And you look at you look at the characterization of the jobs, you know, a majority of jobs being government jobs or part-time jobs. You look at people who were accepting part-time jobs and over 3/4 of people taking part-time jobs had been looking for a full-time job. So all of these things were s and and then the other thing was continuing claims. So while new claims were not that bad, I mean they have been recently but were not bad but continuing claims were bad and the length of time it took people who who lost a job to get a new job was just getting extended and extended and extended. So those were the things really just just looking on looking behind the headline number it was pretty clear that it was not a strong labor market and then anecdotally just talking to talking to people um yeah let's suppose they cut by 75 basis points which is something not maybe immediately but maybe this year right would that actually help the labor market? >> That's a good point. Um, and 75% I mean my base case would be 50, but I don't think 75 is off the table. Um, I'm not sure if it I mean obviously everything is helpful at the incrementally. It's all helpful at the margin, but I don't think a 25 or 50 is going to do anything for the labor market. 75 uh, you know, maybe does a little bit. >> Well, here's my other side of the question here. What will 75 or even a 50 basis point cut do to inflation? >> Well, you know, I don't think inflation's going to run away from us, but I mean, it's clear if you look at the really the last year, um it's it's been st it's it's been stubborn ever since we had the big drop postco uh the CPI and the PPI have been stubborn and they've been inching up for the last what five six months now. they've just been inching up and I don't think that has an awful lot to do with terrorists frankly. Um the problem is if unemployment moves up meaningfully then people have less money to spend and so if there's less demand for goods and services that acts as a bit of a break on on uh prices going up on inflation what's commonly called inflation. So, I'm not expecting inflation to run away, but you know, at the current level, we're almost 50% above the Fed's own target. >> Yeah. >> And that's if we believe the Fed's numbers. >> Sure. >> Or the government's numbers. So, we're already 50% above the target. Um, and and I do think again, Powell is definitely focused on inflation as much as he's focused on on the labor market. So, I don't think he wants to be too aggressive at this point. >> I've heard the opinion that the real reason Trump wants rates lower is because of this $1 trillion interest expense that they're not getting away from. That's higher than the military spending now, defense spending. >> And so, it's going to look very bad for their mandate to lower the deficit when they've got a $1 trillion, you know, burning hole in their pockets every year just from interest expenses, >> right? No, absolutely. And I mean I' I've always said that, you know, that's one of the main reasons that rates just simply have to come down. Uh because we all know this or increasingly we all know it, but you look at all of the bills that Janet Yellen issued um and and she only issued bills she issued very very little at the long end. And so if you've got a five-year bill or a three-month bill that was issued three or five years ago that's coming due now, we've got an average interest expense I think now of about three a little under 3 and a half% I think is the average right now latest number I saw. Well, anything that was issued 3 or 5 years ago rolling over today is going to be at a higher interest rate. >> Yes. And so just without doing anything without extending the terms and maturities or anything whatever you do just by the bills rolling over that interest that interest expense is going to move up and that's without the deficit going up or anything else. I mean I and and as you know Scott Bessant the Treasury Secretary has been using all of the you know bag of tricks that that uh Treasury Secretaries use and he's been he's employed a couple of new ones you know the stable coin what was it called the Genius Act uh to encourage and have light regulation on stable coins that are fully backed by treasuries. No that's a clever way that's one way to get more demand for treasuries. How much does that do this year? I really don't know because you've got to set up your your coin presumably that takes a bit of time. You've got to get it through the regulators and get approved and then you've got to market it. So I don't know how much I really don't know how much you get out of that this year. Let's just say 250 billion to be nice to them. Uh the reduction in reserve requirements on the banks. The whole point of that was to get banks to buy more treasuries. But I don't think banks want to buy more treasuries. They're underwater on the treasuries they own cuz they're holding them to maturity. They're underwater on what they own. Jamie Diamond, CEO of Morgan Chase, has said he has no intention of buying or has no interest, sorry, no interest in buying more treasuries. But but again, that was one of the tricks that they were trying to use, reduce the uh reserve requirement and buy some more treasuries. But maybe that adds, you know, 50 billion maybe. Um, and and there's other little tricks and gimmicks that they're using, but they're not getting up. They're not getting close to how much how much is is going to be sold between now and the end of the year. And I think the bigger story than what does the Fed cut rates by a quarter of a percent or half a percent, the bigger story is will the Fed institute QE again? They won't call it QE, of course. And Powell has said quite firmly last time, he said, "It's not the Fed's business. We don't think about the deficit." He said, "It's not our business. That's the, you know, the administration's problem or business." You know, that's just, if I may say, BS. Of course, they think about the deficit. They might be blaming the others, Congress and the administration for the deficit, but of course they think about it. And so I think the biggest story is will the Fed turned to QA to mop up. >> Show you this remarkable tweet that uh Trump made. Well, not tweet. He posted this on Truth Social. The Fed had followed what we published. If the Fed had double what we published, they would have raised rates in early 2021. The entire organization is broken. It needs to be fixed. They need to use modern sources of information. We strongly disagree with Ken Griffin. Uh we think incompetence >> is more important than to defend theoretical independence. He >> too late. I think he's talking about power has done a terrible job since he adapted a two target. >> It's too low. It's too rigid. They follow data that's years delayed. They don't believe that money supply matters is like the pope not believing in Jesus. We think that's a bigger bigger problem than this notion that they are dependent. Anyway, he doesn't want the Fed to be dependent as you know independent as you know and he wants lower rates. But just evaluate that remarkable attack. Scoped at the same time was also he tweeted a couple days ago. Scoped tweeted that the Fed is singularly at fault for the rising inequality in America. Uh singularly at fault. I I I absolutely think the Fed is at fault for the widening. I and I gave a speech back in 2008 where I said this this these policies will lead to widening inequality. So you didn't have to be a genius to see it. And I think they're absolutely right. Fed's policies are widening the the inequality. I'm I'm not going to talk about exactly what Trump said and everything, but I think that that comment about relying on data that's late is absolutely true. Again, I've been saying that for months. the when when the Fed says and Powell says it, Bernani said it, when the Fed says we're data dependent, what that means is we're looking at data that already reflects something that's happened. If you're looking at labor market data, you're looking at stuff that reflects maybe 6 weeks ago. right >> now when you have se the first and second revisions and it's only the third revision that is anywhere close to reality then you're looking at data that's already 3 or 4 months old before you get an accurate picture if if you if you were to if you were to act on the labor market reports when they first come out knowing that they're going to be revised twice but you you'd be you'd be acting on wrong information right >> yes if you only act on the first month's numbers. And so I've I and other people like Daniela de Martino Booth and I don't want to put words in other people's mouths, but a lot of people have been talking about um the the fact that relying on data that is revised always revised and massively revised for one or two months means that you are always looking at a situation that existed 3 months ago. Yes, >> I have made the comment not facitiously by the way that some of those 400 PhDs sitting in the Eckles building, the Fed's office in Washington DC could be better employed by picking up the phone and calling companies and asking them what's happening or listening to conference calls >> or reading their own freaking beige book. That's the Federal Reserve's beige book on the state of the economy. I don't think the Fed takes any notice of that. They wait for the data to come out, which is always late. >> This is just completely off topic, but uh I just funny anecdote, not anecdote, but piece of news this week. The Labor Department is now hiring a watchdog group to evaluate how the BLS is collecting data after they got rid of their um commissioner. So, >> well, I'm not commenting on I mean, I don't know whether she should should have been fired the way she was fired, but clearly that I've said this to you before in our last conference. I'm not suggesting it's a political hack job to try and make Trump look bad or anything like that. But clearly there's an there's a problem with their methodology. >> Clearly 900 900,000 jobs that we said were created, oops, they weren't. and a year before 800,000 that we thought were created. Oops, they weren't. Well, there's something wrong with their methodology. >> True. Very good point. So, the dollar the fact that this is another opinion that I've heard that the the fact that the the White House is at open war with the Federal Reserve does not spell confidence for the DXY. >> Correct. >> It's already down what 12 13% a year to date. This decline is likely to continue, says this theory. What's your view? >> Yeah. Well, to me, frankly, you had in the first half of a year and and obviously we all look at calendar quarters and years, which is, you know, but in the first half of a year, that was the uh largest dollar decline since uh 1973. That's pretty astonishing when you think about it. The the largest first half decline uh in what is that 50 years. I honestly thought there'd be a bounce. the the fact that there has not been any kind of meaningful bounce. There was a little bounce in mid August, you saw that um and then it quickly reversed. The fact that there has not been a bounce after a big decline like that and now further declines suggests to me that the the appetite for dollars is is very very weak. And and let's remember for 40 or 50 years foreigners have been just until the last couple of years have just been steadily accumulating dollars, >> you know, and and it might be, you know, central banks, but it's also asset managers who were putting, you know, if you're a British asset manager or Swiss asset manager, a lot of your assets are put into the US and that appetite has gone away. So if they just stop buying, we see a decline in the dollar. But you know, after you've had to I'm thinking of as an asset manager now, you you've had maybe you're a British asset manager and you've had 50 or 60% of your assets in the US. Uh you've got 50 or 60% of your assets in the US. If you buy a US stock, you're buying the dollar, of course, right? Um, you buy the dollar to buy the effectively to buy the the stock. You've had the strongest stock market uh in the world. >> Yeah. >> Um, now you're getting sense that maybe they're not so keen on having us in their market. Maybe you're nervous about the dollar, maybe you're nervous about the stock market, but for whatever reason, it's not a bad idea to reduce your exposure to the US at this point. And you multiply that across across the board. So yeah, I mean I think the dollar uh the dollar is going to continue to be weak. And remember the thing is to the extent to the extent that the US loses its reserve currency status and it doesn't have to it's not either it's the reserve currency or it's not. You know that was the way with the pound up until 1945 where we switched from the pound to the dollar. But it doesn't have to be all or nothing. And of course every you know people smarter than I am talking about multipolar world and the bipolar world and so on. So the dollar can lose can partially lose its reserve currency if that makes sense and to the to the extent it loses its reserve currency. All of the dollars that have ever been created still exist, but to the extent that it loses that reserve currency, those dollars will start to come back to the US. >> Yeah, that's a great point. That leads to me leads me to my next question. Foreign central banks hold more gold than treasuries. That's a trend that's been recent, right? This is for the first time since 1996. We saw this yellow line u overtake the blue line which is US Treasury holdings as a percentage of total foreign reserves. To your earlier point, what would happen for this current trend to reverse? >> Yeah. I think there's a problem with that graph to be honest. >> Okay. Um and and you know that might be looking I don't want to get too technical into it but if we're looking at dollars the dollar was 75% of foreign central bank of central banks foreign reserves back in 2000. Okay. And that graph doesn't doesn't show that. >> I see. >> Um if if you look at dollar as a percent the dollar as a percentage of central bank reserves it's still about 47%. down from 75% at the beginning of the of the of the of the century um you know in 1999. But you know there's no question that that the percentage of dollar reserves has gone down dramatically right 75% in 1999 65% 5 years ago 55% 3 years ago and now under 50%. So it's been a long-term trend. Um, and I think it's fair to say that nothing Trump has done has stopped or reversed the trend, but it didn't start with him. It's a long-term trend. And similarly, in the last several years, four or five years, we've had that trend towards higher gold. Um and and and again that's a critical point because what's happening is gold is replacing the dollar as the central reserve asset which is part of of of being a reserve currency part of the other part is being the the excuse me the currency in which trading is done that's also the percentage of world trade that is is is conducted in the dollar has also declined not just this year but over the last several years. And so even though most world trade is still conducted in the dollar and even though the dollar is still the largest reserve asset, the trend is definitely you you know it the trend is definitely towards a reduction and that means that the dollar is not it's losing some of its reserve status. >> Well, let me just present a bare case for the gold price then. So suppose um central banks have bought enough gold right this trend isn't dependent on in fact the 10-year real interest rate um as we both saw in the keynote presentation here has been trending up alongside gold so it's not due to the fact that interest rates in real terms have been declining in fact quite the opposite central banks buying because if they want it because of dolization and moving away from the Trump policies once that trend finishes that's the end of the gold price run Well, no, it's an interesting point and it it the question is when do when do central banks stop buying dollars? But you mentioned Trump policies is that's the thing I want to really emphasize. >> This move didn't happen with Trump. It's been going on for years before that. We know the weaponization of the dollar. Everybody talks about the weaponization of the dollar as though it started with the seizure of Russian central bank assets which was of course under the last administration. But it's been going on for years where the US is increasingly, if I can say it without offending people, increasingly acting as a bully in the world. When you see a Spanish bank that lends I mean a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a French bank that lends money to a Spanish company to build a hotel in Cuba, which is legal under Spanish law, legal under French law, legal under EU law, legal under UN law, and legal under Cuban law for what that's worth. But the US finds the French bank for having a tmerity to lend to a company that's investing in Cuba because it breaks US law and they can enforce that because the bank use the Swift code, the Swift system. That's just one example. But so what I'm saying is the US has been acting like this for years. That's 15 years ago. So nothing Trump has done has slowed it down or reversed it. But I want to emphasize it didn't start with Trump. Now that's not a political point I'm making. The point I'm making is that the willingness or eagerness of foreigners to divest from the dollar is a fundamental thing. It's not something they're saying, well gosh, we've only got three more years of Trump. Let's just hold on. And so so to answer that to get back to the point 47 it's 47 12% was the last number that came out on the amount of dollars in well foreign reserves we're talking foreign reserves of central banks so under half. Now, if a reason you're diversifying, you want to diversify away from excessive concentration in an asset about which you're nervous exacerbated by weaponization of a dollar, the question is what is too much or what is what is what is enough? If you're really worried about weaponization, you know, if you're Kazakhstan or, you know, um you're you're a country that that potentially is is at is at risk, I would argue anything is too much. >> Mhm. >> Right. If you're simply worried about, well, the dollar deficit um you know, the the the the weakness of the dollar because of the twin deficits, um maybe 47% is still too much. Yeah. >> Um, so I think we've got a long way to go before central banks say, "Okay, I'm comfortable with the dollar assets that I hold." And of course, as the dollar goes down, partly because central banks aren't buying anymore and some of them are selling, as the dollar goes down, that only makes a normal person say, "hm, maybe I don't want as much as I have." So, now that markets I'm talking about not just gold and silver, which we'll get into just a bit, but Bitcoin stocks. Now that markets have run up so high in 2025, what are the key data points or trends you're looking for for either um a continuation of this bull rally or a reversal? In other words, what are you basing your investment decisions on right now? >> Yeah. Well, I think one thing definitely will be uh weakness in the economy and how weak the economy is because whatever people want to do, if they don't have the money, they can't do it, right? Um that definitely is one thing. Um I I mean I I think the US well I think I don't know if this was the question but I think the US stock market is is potentially reaching the point the tipping point where where it will where the leaders will roll over and we'll see a a correction in the S&P. Uh I'm not looking for a crash or collapse but we'll probably get rotation out of those leaders. Valuation is obviously one factor but valuation you could have said that a year ago. Market breath is another factor but again you could have said that a year ago. Now the market breath is worse today than it was 12 months ago but still uh those things you know the valuations and the market breath are just continuing to get worse. The other factor of course is insider selling. Um when you see uh an extreme ratio which we're seeing now an extreme ratio of inside buying to insider selling that is another another warning flag. So I think all the warning signs are flashing red. Um it's just a matter of how long be how long can the market continue high and and I don't look at it as a prediction. I look at it on a matter of riskreward and so I just don't think there's so much reward left in the market now but the higher we go the more overvalued we get >> the more risk there is and particularly if you look at it as a starting point if you start from a much higher valuation your returns over 10 or 15 years are inevitably going to be lower than if you start from a lower valuation. When you say rotation, what could they be rotating to? >> Things things that have lagged and things that are undervalued. So that would be small smaller cap stocks, uh value stocks that have lagged, uh income stocks that have lagged, uh commodities, of course, that have lagged tremendously. I mean, the ratio, we we've had a big run in in commodities recently, particularly gold and silver. But if you go back to let's just look at it in the long term and you look at a 100red-year graph of commodities and commodity stocks, commodities number one, commodity stocks number two versus financial stocks, so the S&P or the world uh the M MCI global index, we're at 100redyear lows, 100redyear lows. And if you look at a graph, yes, there's been a little bit of a tick up in the last three months, but essentially we're at 100year lows. >> So those those have definitely lagged. >> Okay. So, uh stock market, the leaders are overvalued a bit. What about the bond market? If you're of the belief that maybe inflation will continue to rise, will the 10 year with the long end of the curve follow inflation? I think there's there's so much I you know I'm first of all I'm not an expert on the bond market but I think there's so many factors that go into that and part of it it really depends on what the Fed does. >> Okay, >> you know does the Fed do yield yield curve control and try to bring the long end down or does it just mop up as many short-term treasuries as as it needs to mop up? I I I I don't know what the Fed's going to do, but I think a large a large part of the answer to your question is what the Fed chooses to do. >> Well, you are an expert on the mining stocks. Let's talk about mining now. Uh the fact that people have told me, look, first you got usually what happens is the gold price moves up, then you got the seniors, and then the juniors start to move with it. That's exactly what's starting to happen. Now, does that then signal the end of the bull market? >> No, absolutely not. And you're absolutely right. what what that typically happens. But remember the really important thing for people to to focus on is that US investors, the ordinary everyday US investor, the ordinary everyday registered investment advisor who's not a gold bugger or a gold expert, um the family offices, um they have only just started moving towards gold. And so when the dentist in Oklahoma calls his broker and says, you know, hey Joe, I think we ought to have a little bit in gold and Joe who knows nothing about gold and says, do you really think so, Fred? Yes, I really want to. What does he buy? He doesn't buy the stocks that are at this conference. He buys Barrack or Newmont or the GDX, you know, he buys the big stuff. So I think for I think the larger companies still have a lot of room to go. Normally, you're right. Normally after three years of gold appreciation and 90% appreciation in the stocks, those stocks would be overvalued and it would be time to move down. But we haven't had the we haven't had the market participation until just the last few weeks. And if you look at those big cap stocks, they are still good value. >> Yeah. Now, after 90% increase in the price, they're not as good value as they were at the beginning of the year. >> Yeah. >> But I think we've talked about this before. Remember, you know, Oscar Wild said people, you know, too many people focus on price, not value. So, when the price of gold moves up, the value of the reserves in the ground move up. >> Sure. >> The value of the production moves up. When the margins expand the way they've expanded, look at the margin expansion. The oil price has not gone up anywhere near as much or is flat. >> So the margin expansion has been tremendous. Companies with all in sustaining costs of 1850 or 1900 or 2,000 even, they're making, you know, $1,500 um um margin and so your cash flows are going up. Well, when that happens, your price to book value and your price to NAV and your price to cash flow, >> those valuations don't go up anywhere near as much as the price of the stocks have gone up. >> Mhm. >> And so the stocks, if you look at a stock like IGO, which is my favorite example, because there's nothing wrong with ano, right? You can't say, "Oh, well, it's cheap because like you can say barrack, it's cheap because of Pakistan or Mali." So you look at AGO and you look at their price to cash flow, right? Their price to cash flow today is a little higher than it was last year, but other than last year, it's the lowest price to cash flow has been for 10 years. So these stocks on a historic basis, on their own historic valuation metric, are not expensive at all. >> Okay. I I I understand what you're saying. Uh the I don't mean to be faciticious with this next one, but I everybody I've talked to at this conference agrees with you. A contrarian might say, "Well, that's a topic indicator." >> You know what? It's interesting you say that because I have thought >> to myself and I've had conversations with people. >> Yeah. >> The fact that I cannot think of a longterm bare case for gold makes me very very nervous. >> Even at $3,600 >> I Yes. I think we might get a correction. >> As I said, if if Powell tries to act hish, although frankly I think the market takes less and less notice of the Fed. Yeah. >> Um but if if they try to act hawkish that there might be a a correction might be might be a pullback not a correction but I find it difficult to think I I truly find it difficult to envisionage a scenario in the next 12 months where gold will be lower and that makes me nervous. >> It makes you nervous. What about how do you feel about silver? Does that if you feel nervous about gold then you should probably feel more nervous about silver's run up. >> Yeah. No, absolutely. And and silver silver of course can be a lot more volatile uh than than gold for for a lot of reasons. Um you know because of the holders of of of silver. I mean the central banks aren't going to suddenly reverse course and start dumping it. Uh you you obviously saw the World Central Bank um uh uh self they have a self-interest of course but the world central bank survey of of central banks >> central bank >> sorry the world gold council I'm sorry >> yes >> the world gold council survey of central banks >> and not one that answered the survey said they intended reducing their gold position next year and about half of them said they intended increasing their gold position over the next So the trend people can change their mind of course but but I think the trend for central banks is to continue to buy. Uh the trend for the economy in the US is towards a a an economic environment that is more conducive for gold. You know a weaker economy, lower interest rates, higher inflation, weaker dollar. That's an environment that is conducive to gold. It's difficult for me to envision frankly uh something that will happen over the next 12 months to make gold meaningfully lower. >> I interviewed you in Vancouver in January of this year. So, beginning of the year, I asked you uh closing off the interview then what you would prefer at the time, gold versus the miners, seniors versus the juniors. You had said the miners given how undervalued they were relative to the price of the bullion. you turned out to be correct given how far the GDX and GXJ have moved up relative to gold and every everything else this year. So that was a good call. I'll ask the same question to close off the conversation. Now with the GDX up 90%, are you still favoring the miners versus gold? >> Yes, I will I will always say what I always say. If you don't have any physical, you should have some physical. But physical is a savings. Physical is an insurance. Definitely the miners. And I'll tell you why. If you look at gold, gold has gone up 40%. In the last 18 months or something, um the gold stocks have gone up 90%. >> Mhm. >> So that's a little over 2 to1 le 2 to1 leverage. >> The last time gold went up 40%. The gold stacks have three and a half times leverage. We have not seen the leverage that we're used to seeing with the gold stocks. Yes, 90%. No one's complaining about that. is great. I don't want to >> short sellers are complaining. >> It's great. Yes, short sellers are complaining. But what I'm saying is we still have not seen because of a dramatic move in gold. I mean that's a very very dramatic gold move in gold we've seen in the last 3 years a very unusual move for gold. Gold is an asset that shouldn't double in 3 years. And the leverage that the gold stocks have shown so far has been significantly below the traditional leverage the gold stocks have shown to bullion. And the reason for that is obvious. It's because of the people who've been buying bullion. Central banks around the world, Chinese nonofficial buyers are not interested in buying North American gold stocks. And so the gold stocks have just not had that leverage. So yeah, I think the gold stocks will do significantly better than bullion. >> Good. Well, thank you very much. Uh, what are you looking at these days? Where can we follow you, Adrian? >> Well, the best place is adrianday.com. >> Yeah. >> And then we talk about the newsletter and the money management. >> What's next on your newsletter? What can people look forward to? >> What's next? >> Yeah. >> Uh, I've got to get through this show yet. >> What are you interested in these days? >> I Well, definitely the gold space. Uh, the the Tether investment into Elemental and the merger with EMX. That's very very we haven't talked about >> very briefly. Why why is why is a stable coin company getting into gold? >> Good question. Um that's a good question and and I mean I think they want they want access to gold whether it's physical gold or or gold royalties um uh you know to back their stable coins and they're very interested in gold. I think that is a very very exciting development because it brings a whole new set of eyeballs. You know, the crypto crowd has never even thought of gold or gold miners. It brings a whole new set of eyeballs onto um on onto this space. >> Okay. Well, we'll keep that on that development, but for now, follow Adrian Day at the website in the link down below. Thank you very much. >> Well, thank you, David. >> It's always a pleasure to see you in person. So happy we had this conversation. Thank you for watching. Don't forget to like and subscribe.