Transcription
There's so much going on beneath the surface, literally beneath the surface of commodity warfare and stockpiling and controlling that we're going to continue to see. We're in this period where countries that own a piece of any supply chain are exerting their control over that piece of the supply chain part of strategic warfare. It has rampant effect on national security on strategy. Elon Musk would not be a trillionaire without tungsten. It is something that China controls 80% of the supply and much higher than that in terms of the production. The US has recognized that the dollar is less dominant in trade. The percent knows this. The administration knows this. The defense department knows this. And you've said that you still see gold at $6,000 by the end of the year. Is that correct?
There's a der in the new supply of high quality tier one gold. And that's the kind of gold that central banks need to stockpile.
Triple digit silver. You said that's happening by the end of the year.
This is the real story with Michelle McCrory. Hello, I'm Michelle Mccori. Thank you for joining us here on the real story. Coming to you from the Boca Raton Resort for the rule symposium where some of the biggest names, the brightest minds, and the top leaders in the mining industry, precious metals, macroeconomics, and the general resource sector have gathered, including Dr. Nami Prince, my next guest. Now, Nomi Prince is an economist, best-selling author, and one of the leading voices on macroeconomics and the intersection of finance, geopolitics, and global markets. Nomi has spent years on Wall Street as a managing director at Goldman Sachs and a senior managing director at Be Sterns. She also had roles at Layman Brothers and Chase Manhattan Bank. And Nomi is currently the founder of Prince Sites Global and the best-selling author of several books, including Permanent Distortion. Nomi, great to have you with us.
So great to be here, Michelle. All right, we are tight on time and we have a lot of ground to cover, but we have to start off with the latest geopolitical developments, how they shape the macro picture, and it looks like the Iran war is back on. The ceasefire is off. Uh, President Trump says that Iran violated the ceasefire. Americans have launched fresh strikes in the region. He says he's not so sure he's long is interested in a deal. doesn't think the memorandum of understanding is going to hold. He's called Iranian leadership scum and looks like we don't have a deal. Of course, this has tremendous implications for markets, equities, precious metals, and oil and whether the US economy can take an extended round of conflict here. So, a lot to unpack just on that topic alone. But from a geopolitical perspective, how do you see this recent flare up playing out?
Well, it's interesting because we we've had these recent flare-ups before the ceasefire agreement was um was discussed at the end of June and and and periodically across this entire period um since the war began or at least a few months into it. Um so I think that the latest round definitely um is something to take into consideration. And it certainly created a a temporary I think spike in oil prices. I'll talk about why I think that's temporary. Um and it certainly had the impact on precious metals yesterday of causing particularly on paper some of those precious metals like gold and silver to go down. Um and then this morning some of them have popped back up again and oil has kind of stabilized again. So I think what all of that means is that in this on again offagain situation with respect to Iran with respect to the straight of Hermoose with respect to the negotiations or non-negotiations or whatever is happening under the scenes and and on headlines um that that the market is more quickly moving past. So it's reacting but then it's sort of moving past its initial reaction because I think it's ultimately anticipating there will be some agreement or that there'll be a normalization if there isn't in terms of prices in terms of flow because even before the agreement at the end of June you we did see oil receding off of those highs of 138 where it spiked to and off of the band of 95 to 110 where it had been hovering for a while into that high 70s mid 80s range which is basically where we are at right now and I think we're going to continue to see range like that 70 to 80s for a number of reasons. We're going to have announcements of agreements or conversations moving forward. You know, we're going to see, you know, whether it's Marco Rubio or whoever else, we're going to hear about delegations trying to uh make things work because the US economy ultimately in particular with respect to oil prices wants to not have conflict in the background. And then we'll also have these moments where Iran will will, you know, hit a tanker and the president will say what he says and we will have this sort of momentary um, you know, sort of fear of, you know, this will go on forever. But even if we're watching that happen and watching that unfold, that back and forth, we are seeing a normalization of prices to a higher level than they were um, in oil before the war, which is understandable because the straight remains predominantly closed. um and that was 20% of the oils um movement across the world. Um but we're also seeing some interesting things in terms of oil movement from for example countries like Colombia feeding into that strategic petroleum reserves usage that the United States um had done a few months ago to normalize oil at that time. We're seeing other places sort of move oil around the region and those places are moving their production faster. They're moving their tankers faster in other parts of the world. These don't get covered in the main headlines. Um, but they are happening and that's one of the reasons why I think we're going to see a higher ban than pre-war, but we're not going to see the spikes that we saw at the beginning of the war.
All right. So, that's interesting. So, you're basically saying that this is the new normal in terms of how markets are perceiving this. An initial reaction, but largely dismissed provided there isn't some tremendously next level of of escalation. Now, oil briefly topped $80, which far below the 120 that it was at when when the war started. Um, but there's also been concern about the long-term implications here for inflation as we know for the economy. Even if, you know, we do get some oil going through the straight of her, or from what I understand, you're seeing alternative sources of oil. There's been concern about the second order effect that that hasn't shown up in inflation yet, that that hasn't shown up in the economy yet. and what that obviously also means for the Fed and therefore the markets and of course gold as well. So let's dissect that.
Right. So, so what we saw is um the last uh sets of CPI and PPI numbers were were elevated um for a period of two months and that was around the time that Kevin Worsh was taking his seat um for the first time as as a chair of um of the Fed and the first FOMC meeting at the end of May came out um into that sort of period of of heightened inflationary um numbers um because that's what they were uh computing is higher oil prices going into those numbers and we've seen them sort of stay around where they are but not elevate since then. But with since then we also have seen oil come down. So what's going to happen is it takes it does have a lag effect um into the economy in order to CPI and PPI numbers which is what the Fed looks at. So we will probably still see elevated but lower inflation numbers when we get the next reads of those two numbers. And that means that the Fed will be looking at lower reads when they gather um at the end of this month for their next meeting. Um it's not like they're going to ease rates but also the talk I think of of um watching inflation will be more tempered. I think they are waiting. I think Kevin Worsh came in um and said very little um at his as we've all talked about that and I think that was partially to insert his own power into um his role. He's his role is going to outlast the Trump administration who appointed him. I mean he's going to be there for a while. He needs to assert his power, his independence and he needs to and he needed to recognize the reality of inflation at the time. But as we see oil prices come down um and or normalized um even at higher levels inflation flare up even with this flare up which we're seeing um mathematically we are going to see in terms of the computation of those inflation numbers we're going to see those inflation numbers not rise as quickly meaning we're not going to see the high threes low fours we're going to start to come back down to you know between 35 and 39 and then we're going to start to come back down to 32 to 37. It might take a couple months to sort of even if we stay around this band of oil to die down, but what we'll see is the trend going down. And I think that will change the dialogue around what's happening in the next couple Fed meetings to not be so afraid about inflation and inflation headlines because numerically they're going to go down and the market's very good at reacting when they see a lower print or a higher print.
So a couple of points there. Firstly, are these inflation numbers really going down or are they going to be managed down in terms of perception? We did have Kevin Walsh come and say that they're going to look at how inflation is calculated, taking out the extremes. He has a task force on inflation, one of his five task forces there. And what do you think this means for cuts? Because obviously that's what the market is interested in. Are we staying steady hiking potentially has now been on the table or or cuts?
Right. So I I don't I don't think we see cuts this year unless we see a tremendous fall um in the labor figures and and we did see them come in below expectations last week um relative to the month before um in terms of latest payroll numbers. We still have in and we still have um unemployment around the the 4.2 4.3% level. That's what it was um pre-COVID when rates were much much lower. So we we we do have a situation where um you know there are things about the economy that aren't quite so strong and again you know to the Kevin Morris point what he's saying about how we calculate inflation numbers when you talk about tempering numbers it's it's almost equivalent to saying you know we had this 2% benchmark which by the way we were Powell was cutting rates you know quite religiously even though he had prior to that said we need to stick this 2% landing which never happened um in in this cycle. So I think what Kevin Morris is doing is saying all right how can we temper inflation to smooth over some of these hikes which will by math make it come in lower certainly make the trend not go up as much if we do have these spikes which is I think what the Fed is trying to do because what that allows the Fed to do is allows the Fed to continue what it's been doing behind the scenes which is buying Treasury bonds its book has increased by $250 billion almost $300 billion in the last six months while we're all sort of uh focused headline on on interest rates. So, it's definitely in an easing bias at the long end because no one's buying the US Treasury. When I say no one, I'm exaggerating, but there's been less demand for the US Treasury even with rates going up in reaction to higher inflation, the potential of the Fed moving rates higher in the short end. So, I think what we're going to see is at the most we got 25 basis points at some point between now and the end of the year if we see inflation trending up. And if it's not, I think we're going to just stay in a in a path. But I think we're going to see language. we're going to see continued um the equivalent of quantitative easing even though it's not called that but the Fed's balance sheet growing in the long end which it has been doing right um and I think that's where we're going to be and I think that's going to calm the market and I also think if the Fed comes out with new guidance on different evaluations or different benchmarks for how they observe inflation I think that's going to have a positive impact as well and the net of that will be a lower dollar um than it has been because it's been reacting right now and higher gold prices.
We've got to get to gold obviously, but seeing as you touched on the dollar, I think this is a very important point here. Um, one of the things that you're saying we're having the focus is on uh cuts or rates, but uh there's liquidity being injected in other ways. is we know that the Trump administration prefers a lower dollar in terms of uh favorability with manufacturing and exports and onshoring agenda of the Trump administration. And you're if I'm understanding you correctly saying that this Iran war is largely like a sideshow in in in effect in terms of it's not really going to have major major major implications. But I want to zoom out to a bigger macro picture and and one of the things that you've highlighted in your work is that we're moving into this era of geopolitical competition over commodities. How does the Iran conflict fit in with that context?
Yeah, thanks that that's an excellent question because I'm I'm actually working on a book called Commodity Wars right now and then the whole idea of that is looking at how much more intense um and intensified the sort of battles have been for commodities that are at strategic lows for for certain countries or that they control and they continue to control. Um and so what what what what Iran did um was obviously we talked about the spikes. It obviously showed that if there is a physical observable moment where supply of a commodity doesn't move or moves much less it has a great impact on prices and of course we've we've talked about how that subdued almond oil that's happening in little bits along multiple supply curves. So for example tungsten which is a which is one of the hardest metals. It's required for aerospace. Elon Musk would not be a trillionaire without tungsten. Um, you know, crying a lot of defenses. It is something that China controls 80% of the supply and and and much higher than that in terms of the production. And they basically ban tungsten um which most people don't know about or talk about or think about um to Japan, which means it's not going into Japan's um creation of some of the chips that then go into the US that go into defense u materials that then supply our companies. There's all of these streams where if one country blocks in their part of strategic warfare, a part of the supply chain, it has rampant effect on national security, on strategy, on prices for what people pay for things where they don't even think about what's what's actually in them like our communication satellite networks that we, you know, so many different minerals in. Um, it's happened with copper. China decided to ban sulfuric acid, which is an esoteric acid that basically breaks raw copper down into pieces that then can be reassociated into wiring. I'm simplifying. Um, so when they do that, it means that that cost goes higher or the cost of production goes higher and that has a knock-on effect. So, we're in this period where countries that own a piece of any supply chain are exerting their control over that piece of the supply chain. Sometimes it's the raw supply and sometimes it's a little piece on the supply chain which just a chemical that's needed to move raw something to produce something. Yeah. And we're seeing more and more of that. And so so Iran was just a physical manifestation of that. And war is never good, but it's it's a physical manifestation that was obvious to headlines, obvious to news, obvious to people. Um but there's so much going on beneath the surface, literally beneath the surface of of commodity warfare um and stockpiling and controlling um that we're going to continue to see and and resource nationalism.
So there was speculation that the reason behind this war and yes, the official narrative was to prevent Iran from developing a nuclear weapon and many would argue that that is indeed a very important cause. But there was speculation that the real reason behind this war was to maintain uh dollar dominance with regards to the petro dollar as we saw oil being priced outside the dollar um both in Iran and in Venezuela and that that was the real reason behind these actions both in Venezuela and in Iran. Um, and we basically heard from Treasury Secretary Scott Bassant, who seemed to say the quiet pot out loud, confirming that in an interview on CNBC. And let me just play that soundbite for you.
Dollar dominance is essential. And everything President Trump is doing here is, you know, if you look, uh, the the the new Venezuela is going to is invoicing in dollars. They're coming back onto the dollar system. They've been sanctioned. they were not allowed to translate or to transact in dollars and now uh dollar the dollar is going to be the centerpiece of their trade. You know, they were selling discounted oil to China and not getting dollars. You we're seeing in the uh Iranian negotiations the Iranians will be uh invoicing in dollars. So everything we are doing is pushing the dollar the back it it's never left as the centerpiece for the global currency system but we're reinforcing it. You know, I would anticipate uh when the Russia Ukraine conflict ends that Russia will want to come back in the dollar system because again, you know, the dollar it's our liquidity. It's our capital markets. It's the depth and breadth. Everyone wants to be here. And I think many times the great great thing about the United States is we we course correct when we go too far one way or the other. And I think we should not be the shy about flexing where we have advantages and where we have advantages share with our allies and push back the uh on those who they are are not aligned with us.
What is your read on that?
So, so the whole petrod dollar system um which which was the idea that we would have an unofficial effectively agreement with the Middle East and Middle East countries to import their petroleum and they would basically price it in dollars on the global markets and other countries would buy it in dollars has been enforced in Iran for for decades. Um but what has happened um and one of the reasons why why we did what we did with respect to Venezuela is that dominance um both in the dollar and the petro dollar have have been um you know pushed back at for for different reasons with respect to the petro dollar um there have been an increase and besant knows this, the administration knows this, the defense department knows this in in deals in in settlements of trade of oil in currencies that are not the dollar. Um this is public information. China and Saudi Arabia have deals that trade in one and settle in, you know, the Chinese currency. Same thing with China and Iran. Iran had payment systems that they were developing with respect to their Chinese um importers of the oil that went through Iran that they basically activated in the period of this war. So there's also action reaction, right? So when we see what's happening in one area, it causes other countries to say um actually potentially the opposite which is that all right well if you want to enforce the petro dollar we're going to enforce our trading systems and our payment systems and our agreements in our currency right and that's that's where gold comes in that's where a whole lot of other anchoring comes in. So there there's always action reaction. So what the United States has said is like we are dominant in oil in terms of the reserves we have in terms of the nations that we have. Um and we're also dominant in in natural gas in other types of products but other countries are not necessarily settling in these currencies and we want to assert their ability or or try to push their um necessity to do that. Um and in the short term again when we see that that visual um and we and and every sort of news report is about the closure of a straight and the lack of movement in oil it makes the scarcity of that product you know go up. We just talked about that and also the thing that it's currently mostly settled in which is the dollar appreciate in the very near term. But the effect of that short-term movement is more long-term assessment of countries wants and desires and movements towards settling and using their own currencies. And so we're seeing both things happening at the same time. The US has recognized that the dollar is less dominant in in trade. It's still the dominant currency, but it's less and less dominant. um it's still the number one reserve currency, but US treasuries are now second to gold in terms of reserves of central banks and gold is is higher than the euro. So there's definitely fights on both sides, right, of the dollar strength, dollar weakening sides. And that's a whole other conversation whether this actually accelerates ddollarization or reasserts American dominance, which is arguably what the administration would like to do here, or if it creates the need for that neutral reserve asset in the global monetary system, which so many of us talk about, which is gold. And I know we're out of time. I would love to unpack that conversation further, but I have to get to gold with you. And you've said that you still see gold at $6,000 by the end of the year. Is that correct?
That's right. All right. We we had forecast that before it went to 5,500 in January. Of course, the Iran war happened and and all the things that we were talking about occurred and and there's been a lot of paper trading in gold and and more so actually in silver. Um but if we look at the physical demand for gold where it's coming from from central banks from Asia from India from the Saudi Arabian sovereign fund from various uh wealth fund from various different locations the physical demand for gold and the vaulting of gold actually is increasing while the paper price of gold has decreased as a result of the ability to trade paper more quickly than to accumulate physical gold and and we have a gap which is why we're trading around 41 4200 right now. Um but I still believe we're going to hit 6,000 around the to turn of the year because all of the forces that were in play um that pushed towards that 5500 level um remain in play. The physical buyers remain physical buyers. Um and then the reaction um to what's happening by the markets has predominantly moved the paper markets which has had the impact of moving the overall price downward but it hasn't also changed the supply equation. There is a darth and we just covered um this in a piece yesterday. Um there's a der in the new supply of highquality tier one gold. Um and that's the kind of gold that central banks need to stockpile. They can't go around fishing for like lowquality um you know non-pure types of gold. So there there's a certain um regulation that they have to adhere to um because of the Bank of International Settlements and other regulatory um rules. maybe a good gold and there is less and less of it available for the growing physical demand. And that's why also just in terms of that 6,000 range which we see we're also seeing a lot of junior developers of gold being bought out being taken over being strategically um equity inject um injected into by the larger gold producers that are sitting on $1,800 actually gold costs at a $4,200 market. They've got a lot of cash, they've got a lot of profit, and they're going shopping because they want to lock in tomorrow's gold.
So, central bank demand is the main driver for that $6,000 gold. But also, you're saying that this a structural supply issue here. Correct me if I'm wrong. You said recently that existing gold mines can't produce more gold even when the prices triple.
That's right. Because when we talk about a price in a market, right, we're saying the price is triple. We're talking about where the market is is envisioning gold. And for all the reasons that the market trades, the physical buying, the paper buying when it turns around, and there's all sorts of reasons why a gold price moves up. But you, that doesn't mean you can move your miners faster. That doesn't mean you can blast underground geology faster. That doesn't mean you can necessarily find and refine the pure gold faster. All it means is that in the future, you know that the gold that that's coming out um as fast as you can get it out is going to have a good price. Now, I believe you put a some data out there that that S&P Global puts the average time from discovering a new gold deposit to producing first metal at about 18 years and that in the 1980s that number was six.
I am sight. Are you correct?
No, that that's correct. and and that that is an average number and and the reason for that is that um is that the the permitting process, the regulatory process, the refining um rules process, the checking of the integrity and the quality of grade process, all of that, the jurisdictional issues and and certain local community um environmental concerns that that have happened just make the process take longer.
So, how much of it is a geological issue versus an economic or bureaucratic issue? like are the reserves actually there?
It it's actually a combination because if you run into bureaucratic issues or local issues at a place where you have the best quality of gold, well then it's going to take you longer to get through those to get to that gold. So it's it's very much dependent on where the mines are. And that's one of the reasons, for example, when we look at where there's opportunity in miners, we're looking at places where some of those permit processes have been fasttracked, like in the United States, um like in Canada recently. So that 18-year number is going to come down and it's it's marginally lower in some of those places. And also there's a lot of brown site developers in gold, meaning that gold has already been prospected. So the miners that are actually prospecting or developing or growing their deposits and their projects in areas where there was past data, where there was a larger company that mined there and then left because they went to buy something else. There's a lot of movement going on in that gold mining community where if you reach a brown you know so a brown site versus a green site a new site that time that average time that S&P talks about is going to contract substantially so it's very selective so but let me ask you this if mining companies are ultimately driven by growth and they don't have the capacity to create more gold I mean isn't this a headwind for the mining industry at large what does it mean when we start to say oh you know mining equities should be higher but if they're not going to get the gold because geologically, economically, bureaucratically, you're saying it's going to take 18 years uh to to get it. What does it mean for all of these mining stocks that we're supposed to be so, you know, excited about?
Right. So, again, the the ATM number is is taking into account a new project development from the ground up and and that and that's the S&P number. So, so we talked about that in our piece because that that is the high number. If we, you know, we we run out of all supply and we have to start from scratch everywhere in the world. that's pretty much what they're talking about and that is a high number and that is true. Um but where where um there is a headwind um is is that if you're starting in a place where you got to get your permits, your environmental license, no one's ever scoped gold there before, you know, you're hiring people from day one who have no experience like all sorts of things that could happen. But if you're looking at the mining companies that are in areas that are in projects where they continue to have actually better technology even AI technology to look at where relative to their current project they should they should mine next. So they're basically contracting the amount of time that they need to take in order to get to that good next gold piece of a deposit. Those are the companies and there are quite a lot that the bigger majors are interested in. Your Nikos, your Wheatens, your barracks um that they have that possibility of feeding into um what continues to be a gold demand. So the gold market's very interesting because all of that means a price is going to be squeezed because on average not enough is going to come out of the ground to get into the demand. But if you look selective, there's tremendous opportunities for investing. But it has to be in the right company. So Princess, we look at the right company. All of those factors have to be in play and those particular miners that are in line for the takeover that are in line um in the right jurisdiction that have the appropriate project that have the appropriate technology that have discovered the right grade of gold those have significant upside opportunity.
All right. Two more questions before you wrap up because I I can tell that I've been summoned to wrap up with you. You're very popular here at the Royal Symposium as you are elsewhere. I have to touch on this oil idea that we start off the conversation because we are getting reports that the petroleum strategic reserve is at levels not seen since 1983 that there I believe 19 million um barrels left. I'm not exactly sure what the exact number is, but you're saying that that is not essentially the case because you're ultimately not seeing oil pop above $80 on other supply sources.
There are two things going on. Um we are definitely at lowest levels of strategic reserves in nearly half a century and a lot of that has be been the result of two presidents and two wars. Um the the Russia Ukraine war and and Biden taking some of the strategic petroleum reserves out and then what's happening in Iran with the Trump administration doing that. So we are at low levels and that does mean we have to replenish the strategic petroleum reserves. Now there have been statements from the administration that have indicated that can be done in a very short period of time. That's not even actually a physical logistical possibility. So what that means is these reserves are going to stay at low levels. They might rise at slow paces and oil needs to be found in order to actually replenish these reserves. So so the statement about reserves and the actual reality of being able to fill them are are disperate. So when we look at the oil price, we're looking at basically fundamental flowing now oil and and where that's normalizing to while it's going to take a long time relative to statements about how it will not take a long time to replenish those reserves. So for example for the US petroleum reserve um we will be the fastest place to get that oil foam is from Central and South America because that's the kind of grade and that that was why Venezuela have that's the kind of grade that we need and we can process faster in order to start to replenish the reserve. So there's two things going on um at the same time and there's there's two different sort of narratives that are thrown out into the you know sort of headline ether.
Right and then you're also saying that there are other sources of oil that are not coming in through the straight of moose. Final question you have spent years arguing that liquidity drives markets more so than fundamentals and that also causes distortion. Where are investors misunderstanding liquidity right now? Where are they getting it wrong?
I I think what they're doing is they're moving their liquidity too quickly on the downside and the upside relative to headlines. And so what they're getting wrong is actually stepping back and looking at, you know, I've been talking about this for years and looking at how distorted that makes you, for example, a mining price relative to an AI company price. You know, it can take very short periods of time to produce a new form of chip or a new form of semiconductor takes much longer to find the materials um in order to put into those um to to that. And so I think the market doesn't still, and this is where there's opportunity, still understand the difference between the timing and the difficulty of getting real hard assets out of the ground, all the supply chain difficulties along the way relative to how easy it is to go in and out of SpaceX. And and I think that continues to be um an opportunity for people have patience, but also a mistake potentially for people who are just, you know, moving towards headlines because the average investor is never going to move as well as the biggest hedge fund. They're always going to be the tail end of that trade.
All right, I lied. One more question. Triple digit silver. You said that's happening by the end of the year.
I see silver back um towards the 120 level by the turn of the year. That was the forecast we had had in January before it hit 121. Of course, we had the war. There's a larger deficit in silver. Um and it's more difficult to find silver u mining into true industrial demand um than there is in gold.
Okay, now I have to let you go. Dr. Nami Prince, thank you so much for spending this time with us.
Thank you, Michelle. This is the real story with Michelle McCori.