Gold, silver and bonds: markets split in two

Gold and silver rally while bonds sink

Last Wednesday, gold rose 181 dollars in a single session, up 4.2%, its biggest gain since 6 February. Silver gained 5.7%. Over the week, gold added 5.2% and silver 6.7%, with the Bloomberg commodity index at three-month highs. According to one participant, the trigger was Treasury Secretary Scott Bessent's decision to double the size of bond buyback operations to support liquidity.

Meanwhile, the 30-year US bond hit 5.348% and the 10-year stood at 4.930%. In Europe, one participant describes the situation as an absolute disaster. The pattern he describes is money fleeing fixed income and seeking refuge in metals.

Gold breaks above 4,200 and silver eyes 75 dollars

In the short term, according to the technical analysis cited, gold faces resistance at 4,448 dollars, with targets at 4,575 and 4,666. On the downside, the first significant support sits at 4,322, with 4,263 and 4,205 expected below. The zone between 4,098 and 4,135 is holding up well against bearish pressure, but to confirm momentum the metal needs to break above 4,233 and then the 4,240-4,250 band.

Silver is another story. If it closes above the weekly high of 69.03 dollars, it would confirm a small head-and-shoulders pattern with targets at 71.05 and 72.10, and a theoretical objective around 75. One participant is less optimistic and is considering buying dips around November, when India typically increases its imports of the metal.

There is one fact that often goes unnoticed: gold now accounts for 27% of global reserves, above the 22% share of US Treasuries and the 15% of the euro. Basel III elevated it to Tier 1 status, putting it on a par with sovereign debt and cash in terms of risk. And US gold reserves are still valued at 42.22 dollars per ounce, unchanged since 1973. A revaluation at market prices would add 1.13 trillion dollars to public accounts.

Why is oil rising when there is no real shortage?

One participant says Brent is hovering around 120 dollars and WTI crude rose 4.22 dollars in a week to 82.40. The cost of chartering a tanker on the Persian Gulf to China route exceeded one million dollars a day for the first time, according to Bloomberg. The Strait of Hormuz is virtually closed to commercial traffic and refineries in Russia and the Middle East have suffered considerable damage from the war.

But according to that participant's analysis, production data do not point to a real shortage. Output has not fallen significantly, demand has moderated and inventories are covering the gap. What is holding up the price is speculation and refining margins. In the United States, capping that margin by law with Trump in the White House is, in his view, simply impossible. The result is that diesel is becoming the business of the year while ordinary consumers pay the bill at the pump.

AI has its own bubble too: 1.65 trillion in hidden debt

The financial statements of Alphabet, Amazon, Meta, Microsoft and Oracle revealed 1.65 trillion dollars in hidden debt, eight times larger in four years, according to a Japanese outlet. All of it driven by the race to build data centres. Morgan Stanley and Moody's have warned about the problem in their reports. The comparison with the 2008 subprime mortgages is not far-fetched: the sector's growth is not based on real revenues, but on promises and debt.

Michael Burry wrote on X on 6 October that the stock market is in the first stage of grief: denial. Drawing on 2000 and 2008, he argues that this phase lasts between six and nine months. Some compare the current scenario with 2007: accelerating inflation, oil above 100 dollars, producer prices rising at the fastest pace since 1981. And then came the crash.

The big question: deflation or runaway inflation

The underlying debate is whether what lies ahead will be a deflationary crisis like 2008 or an inflationary one like the 1970s. Those who back the deflation case argue that credit tightening and mass unemployment will cool prices. Those who argue the opposite point out that in 2008 governments were not broke, whereas now they are, which will force them to print money to avoid default. With public debt at unsustainable levels and commodity supply damaged, inflation has further to run than many expect.

The median consumer, the one on the lower arm of the K, can take no more. And central banks know it. That is why the bond market is giving strange signals: when high inflation data come out, yields rise only to correct immediately and fall back. The fixed income market is pricing in economic weakness, not inflation. At least, for now.

The dollar and the exact point where the analysis gets stuck

The dollar index is being tested at the 101.60 support. If it loses that level, the first downside target is 101.10. If it holds, a rebound towards 102.36-102.49 is plausible. And if the dollar falls, gold has room to rise. Everything fits in the short term.

The problem is the long term. Nobody knows what Trump will do if he loses the election for a second term, or how markets will react if he carries out his threat to use "the mother of all bombs" against Iran. Nobody knows whether the Iran war will end before or after the vote. Nobody knows whether gold at 8,000 dollars is a prophecy or a fantasy. The analysis gets stuck right there, at the point where the data stop being useful and speculation begins.