Trade War Incoming? Trump’s 25% Tariffs, Gold’s Record Highs & Fed’s Next Move (Uncut) 02-01-2025
Trade War Incoming? Trump’s 25% Tariffs, Gold’s Record Highs & Fed’s Next Move | David Rosenberg
Hey everyone, welcome back to Kitco News, I’m Jeremy Safran. North America is bracing for a trade war that could kick off in just a matter of weeks. President Donald Trump is threatening to slap 25% tariffs on imports from Canada and Mexico, a move that would upend nearly $1.6 trillion in annual trade, hammer supply chains and send ripple effects through businesses, inflation and consumer prices.
Now the deadline? Initially the tariffs were expected to take effect this Saturday, but a new Reuters report that just came out with Reuters is saying that they’re going to begin on March 1st, giving markets and businesses just one month to prepare. Trump says that these tariffs are about pressuring Canada and Mexico to crack down on illegal immigration and fentanyl trafficking, arguing that both countries aren’t doing enough to stop the problems from spilling over into the U.S. But this move could also dismantle a 30-year trade system, one that is tightly integrated. North American economies and kept costs lower for businesses and consumers.
And as this all plays out, gold is surging past $2,800 an ounce on the spot side, hitting new record highs and on track for its best month since March of 2024. Now is this a reaction to Trump’s trade war threats or is it something bigger? My next guest is here to break it all down and how bad things may get or if this could all disappear if Trump backs off at the last minute like he did with Colombia. David Rosenberg is the chief economist and strategist at Rosenberg Research and Associates.
Always great to see you. Welcome back to the show, Dave. Thank you very much.
- I had to throw the script up before coming to air here. I mean, the markets are also scrambling for clarity.
We were expecting these tariffs as soon as this weekend. But there’s this new report, as I mentioned, that Trump’s 25 percent tariffs on Canada and Mexico are now set to begin on March 1st, pushing back the initial deadline here. What does this extra month change? I mean, does this make it more likely for Trump to ultimately follow through or does it leave more time to negotiations? Yeah.
March 1st. But of what year? Yeah. No, I think this is probably the early stages of him sort of wiggling out of this tariff threat.
Look, you say he backed away from Colombia. Well, Colombia did get those planes to bring those illegal immigrants home. It’s hard to know what Canada has to do more than it’s done.
But I think that what’s happening behind the scenes is that, you know, Trump’s, you know, Trump’s team is not filled with Navarro’s. It’s filled with people like Scott Besant. And I think that they’re probably trying to talk some sense into him.
It’s always hard to know with Donald Trump what’s going to happen in the end. He’s so unpredictable. But you’d have to say that, you know, just yesterday he was saying over the weekend, look out.
And he was on Bloomberg News. It was all over the headlines. The Canadian dollar broke through 145.
That it was going to happen on Saturday. And now he comes up with this. It just goes to the nature of the beast.
He’s extremely unpredictable. That’s his mantra. He seems quite proud of it.
And now, I guess you could say, you know, we have some some time. Time to do what? I guess time to provide some more evidence that we’re doing things at the border that are going to make him happy. But I would say this is probably, at the margin, a rather encouraging sign for Canada, for sure.
Yeah. Yeah. I mean, you recently posted on X, I think on Thursday, hinting that Trump could step back from his 25 percent tariff warning this weekend, just as he did with Colombia.
Now we have this new report. Obviously you’re right here. If he does, you were mentioning a quick trade.
Break that down for the audience. Break it down. It’s I could explain it to actually to a high school student.
That’s how simple it is. When did the Canadian dollar was already weak. Don’t get me wrong.
But back on November 21st, 25th, when he uttered 25 percent tariffs, Canadian dollar was 140. Just a little weaker than that, a little lower than that. And then yesterday evening, we got to like 145 and change.
So my point was that if he backs away, we’re going to go back to the level naturally where this wasn’t a threat, because the last call at four or five figures of weakness on the Canadian dollar really came from the tariff threat. And so it’s so far as that recedes and look, I’m pretty sure that in the minutes, seconds that followed the Reuters news, you cited the Canadian dollar, I think it popped half a cent. So that’s how on tenor hooks the market is over this one issue.
Yeah. So we don’t know for sure. State of execution, March 1st, OK, then maybe April 1st.
Who knows? We’re talking about Donald Trump. Yeah. So but yeah, but I’d say that if the threat was fully alleviated, we probably on an interim basis rally back to 140 from where we are now.
Yeah. Quick trade indeed. It’s been fascinating to watch that.
I know a lot of snowbirds down in Florida not enjoying the Canadian prices of U.S. currency right now. OK. Another potential wild card is energy prices.
I mean, Trump has suggested that Canadian and Mexican crude oil atop U.S. import could also face tariffs. Now, that has some questioning whether he’ll hold back to avoid a surge at the gas pumps. Earlier this week, Trump said that he may not include oil in Canadian tariffs if he doesn’t walk away from this and we get a retaliatory actions from Canada and Mexico.
For instance, I think PM Justin Trudeau, the guy that’s in charge right now, has already said that if tariffs are implemented against Canada, they will respond. So I mean, what will this mean? Can you lay out a couple of scenarios for us? Well, I think that there’s really two scenarios, I suppose. I mean, two extreme scenarios.
The one is that we get into a fight with the bully in the schoolyard and Trump is the bully and we get a black eye. And we don’t want to fight back because when you fight the bully, after you get the one black eye, you get two black eyes. So what you do is do nothing or do very little and then allow monetary policy and maybe fiscal policy to cushion the blow.
So what I was saying is that there’s different ways to skin a cat. Do we really want to retaliate against the bully? And who knows with unpredictable Trump how he will retaliate again? We get into a trade war. I mean, the reality is that the U.S. does need us and the North American supply chain needs all three countries.
But let’s face facts. We ship over 20% of our GDP to the United States. They ship the grand total of 1% of their GDP to Canada.
So the relationship from an economic standpoint has never been even. And Trump is taking advantage of that for whatever reason. I have some theories on that.
But the response could either be layer these tariffs on us and we will respond by dramatically cutting interest rates, weakening with the Fed on hold, weakening the Canadian dollar. So the weakening Canadian dollar will blunt some of that impact from the tariff. And at the same time, you know, the federal government and I think we’d have to have an emergency session in Parliament.
That could happen. And we would have to have a form, a large form of fiscal stimulus. Now, I know that people bellyache about government deficits.
I don’t know why. You see, it’s weird that in Canada we bellyache about government deficits and the deficit is 2% of GDP. It’s yesterday’s story.
I don’t think that’s the reason why Justin Trudeau, his political fortunes went by the wayside. The United States has over a 6% deficit of GDP and nobody cares. Nobody cares.
Three years in a row, over 6% deficit of GDP. Nobody cares. In Canada, it’s 2%.
Oh, did you see that Christian Freeland missed the fiscal numbers. We have the capacity to stimulate fiscal policy and cushion the blow. We have the capacity through monetary policy, through the currency and interest rates, and even through quantitative easing to cushion the blow.
So that’s the passive indirect response. The scorched earth policy, which I call the burn down the house policy, because the way that you can really avoid the second black eye from the bully after he gives you the first black eye is you burn down his house. You burn down the bully’s house, he’s not going to give you the second black eye.
So you can go the passive route, as I mentioned before, or scorched earth, which means that you just put on a broad export ban in the United States. You know, especially now, heading into February, wouldn’t that be great to just put a cap on electricity, natural gas, oil? I mean, forget tariffs or countervailing tariffs. Forget that.
We’ll just block our exports of the stuff they need and we’ll see how Trump’s approval rating does as households freeze in the depth of winter in the Midwest and the Northeast. Yeah. Just cut it off.
Cut off the energy. And again, that is going to lead to a loss of income and jobs temporarily. Temporarily.
And so what we would do, what would Ottawa do to get us through would be once again, probably a large scale fiscal stimulus check. And the precedent has been set. Do you remember we set the precedent back after the Fed set the precedent after the financial crisis with quantitative easing? Quantitative easing was so radical in 2008, 2009.
Now, kindergarten children know what QE is. It’s become part of the financial nomenclature. Well, stimulus checks.
Remember, like CURB, we did that during the COVID shock. That was the health shock. We set a precedent.
And now we’re going to have a massive economic shock from our largest trading partner. And we know that stimulus checks work. And believe it or not, despite all my friends telling me, oh, we couldn’t do that because of the deficit, it would just be a temporary fiscal stimulus to get us through.
Because if we do that, believe me, if we cut off exports, critical mineral exports, we cut off energy. And what about softwood lumber? Think of how critical that is for the U.S. home building. So, you know, it’s a, you know, we can create some problems in the U.S. that will create problems with Trump’s approval rating.
And outside the S&P 500 or the NASDAQ 100, what else is Donald Trump consuming is his approval rating. And if we do it correctly, if we’re going to go to the scorched earth, burn down the house policy, that might be the way to go. I wouldn’t underestimate our ability to get Trump to go back on the tariffs if we can as a nation create the conditions where his approval rating goes down.
His approval rating goes down. That has major implications because all of a sudden, these 38 Freedom Caucus members in the House who are being pressured and bullied by Mike Johnson to follow Trump’s fiscal policy, when they see his approval rating going down, they’re going to feel emboldened to do the right thing, which is no, we’re not going to sign on to all these tax cuts at a time of 130% debt to GDP ratio or fiscal deficits, 6% of GDP to perpetuity. There’s a lot of Republicans that are dead set against Trump’s fiscal, ambitious fiscal agenda, but feel intimidated.
Trump’s approval rating goes down. That intimidation goes away. And as it goes away, there goes Trump’s fiscal agenda because he only has a one seat majority in the House and there’s no bill that gets legislated without the House.
Donald Trump can’t wave a magic wand. He can do executive orders, but not on fiscal policy. So there’s all sorts of things.
If I’m strategizing with Ottawa and I’m talking about what are some of the things that we could do, that’s what I’d be talking about. Those would be my two really binary solutions. But, you know, as I’m watching Donald Trump more and more and how emboldened he seems to be believing he is, I’m starting to get more tempted to go with the burn down the House policy and see where that gets him.
Interesting. And to your point, Dave, I mean, you know, Canada supplies 60% of U.S. crude imports. I mean, if oil is hit with a 25% tariff, some projections suggest that gas prices could jump, you know, 75 cents per gallon overnight.
I mean, how much of an inflationary shock would that be? Could it force the Fed into a more hawkish stance? And what would that mean for consumer spending, especially with household budgets already stretched? Well, look, it’s a. The thing about inflation, inflation is a is a is a process. It’s a dynamic process. People confuse tariffs with inflation.
For example. If OPEC in 1973. Had only raised the oil price once.
And it was a one time level shift. The economy would have adjusted to it and there would not have been a decade’s worth of inflation. But you see the OPEC and for a totally oil dependent economy at the time imported oil.
OPEC raised prices every year significantly over a whole decade and by tenfold. That’s a whole process. That’s a dynamic process.
You know, we had the experience of inflation in 2021, 2022. But that’s because every single month there was the supply chain, especially out of China, kept on getting squeezed. We reopened the economy with all the stimulus.
But every single month there was some other port being shut down, a major port. So the supply chains kept on getting squeezed and squeezed and squeezed. That was a dynamic process until it ended.
The tariff is a one time price level shock. And so it is not inflationary because inflation is a trend, not a level. The tariff will produce a huge price shock.
It becomes inflationary and a problem for the Fed, which of course they’re concerned with, if that price shock feeds into wages. And that’s probably the biggest concern because we have a 4% unemployment rate in the United States. It’s not five or six.
And so there’s the concern about the second round impact and that’s how you get to a wage price spiral. So the key would be not the initial price shock from the tariff, but how the labor market responds. And that’s the unknown.
But that’s how you would get to a more perpetual inflationary environment is if it feeds into wages. Okay, I have to talk to you about the core PCE index. I mean, it’s the Fed’s preferred inflation gauge.
It rose 2.8% year over year, holding steady from November. While that’s down significantly from the peak inflation we saw back in 2022. It’s still above the Fed’s 2% target.
And of course, meanwhile, this week the Fed held rates steady, opting to pause after three consecutive rate cuts. Powell acknowledged that the inflation remains somewhat elevated and said that the Fed is watching policy uncertainty, including these tariffs, before making the next move. Markets are still betting on rate cuts by mid-year, but Powell didn’t really comment on any specific timeline.
Do you think Powell’s signaling that the rate cuts may be further out than the market expects? Well, let me just go to one point here. And this is something that Powell’s been focused on and talked about. Of course, economists know what this number is.
It’s called the market-based core PCE deflator. That’s a mouthful. Remember that so much of these inflation numbers come out of the services sector and are imputed.
When I give a lecture to investors about these price metrics, I say, did you ever think about how they determine what a price of a financial service is? Is it a deposit? Is it a fee? Is it commission? These banks are heterogeneous entities with multiple lines of business. So I will show investors, look at the financial services component of the CPI or the PCE deflator and tell me if this makes any sense to you. It’s an imputed price.
The government, imputed means guesswork. They’re guessing, educated guessing. Look what they do with housing, with imputed rent, imputed.
Financial services, imputed. Much of shelter is imputed. You see, goods prices, chairs, appliances, automobiles, food, easy, easy.
To be able to, as a statistician in the government, establish how those prices are moving every month, things you can see, touch and feel. Services require a lot of guesswork. So what is called the market-based, it’s based on market pricing, not government guesswork.
It’s called the market-based core PC deflator. And that’s the one that Powell is now focused on. Well, that came in at plus .1, month over month, plus .1 for the second month in a row.
For, like, nine months in a row, it’s been .2 or lower. The stuff that actually is subject to pricing in the marketplace. And I know that the year-over-year, because that year-over-year is 2.4, and you would say to me, oh, well, 2.4, still not a 2%.
The 2%, the holy grail, we’re 40 basis points above the holy grail. Meanwhile, when you take a look over the past three and six months, guess what? This market-based core PC deflator is running right at target at 2%. Ergo, if the recent trends persist, guess what? By the end of the first quarter, certainly by the second quarter, that year-over-year trend that you’re talking about, that everybody is fixated on, as if there’s something magical about the 12-month trend, that will be down to 2%.
And then you and I will have a different discussion. As far as Powell is concerned, I don’t find him hawkish. He’s just in a bog of uncertainty like the rest of us.
And like he said, not in this last meeting, but the previous meeting, he says we’re walking in a dark room. What do you do when you walk in a dark room? What do you do? You stand still so you don’t trip over a chair. Well, this is Trump 2.0 is otherwise known as Trump 1.0 on steroids and between fiscal policy, immigration policy, fiscal policy, and everything else.
And he’s untethered because unless he changes the Constitution or has Congress do it, he’s not going to run again. So we’re up against a tremendous amount of uncertainty. And the Fed already cut rates 100 basis points, and now they’re just going to stand pat.
But I think they’ll be cutting rates aggressively in the second half of the year. I think you’re quite right. The markets don’t really have much pricing, if anything, between now and June.
And the Fed has basically brought the market to that expectation. It’ll be data dependent, to be sure. But remember the things that Powell told us at his post-meeting press conference.
He said that policy is substantially, the funds rate substantially above neutral. Yes, indeed. Indeed, like 130, 140 basis points above the Fed’s own estimate of neutral, which has gone up over time.
And he told us that he is expecting a break in the rental series, which is a lagging indicator. In real time in the United States, we know that apartment rents are going down. But the way it’s constructed in the CPI with the distributive lags, it’s taking a long time to play out.
But he made the point that it is playing out and will continue to play out. So I don’t think he abandoned his confidence that inflation is heading to target. It’s just taking longer to happen.
And as a result, he’s become a little more cautious, of course, after already cutting rates 100 basis points. And then he made a third and final point, which is the labor market. And he says, indeed, I am on record saying the labor market is healthy.
The labor market is healthy because the firing rate is so low. Nobody is laying anybody off. However, however, the hiring rate has plummeted.
It is like a hot knife through butter. The hiring rate, companies are not hiring. So the labor market, like you look at the jobless claims numbers, gives this illusion of robustness to the beloved U.S. job market.
However, companies are not firing anybody. But they’re not hiring anybody. And how do you describe the labor market as being vibrant when hirings are going down? They’re below where they were pre-COVID.
So the one thing we know as economists is what leads what? Well, hiring rates lead firing rates. So the rapid decline in hirings that we’ve seen is going to lead to layoffs. And then the next thing you know, we’re seeing a more notable deterioration in the jobs market.
And we get that with these underlying inflation measures I talked about, which Powell is looking at, getting to 2%, I think more quickly than the markets believe. We are going to see the Fed cutting rates maybe even in the spring, certainly in the summer. And when they go, they’ll be going aggressively.
And so to answer your question, yeah, they’re on hold for now. You know, I think it was probably a mistake after they cut 100 to think that they’re going to go gangbusters on more cuts. That didn’t happen.
I think right now the market’s gone the other way and think the Fed’s in some sort of prolonged or permanent pause here. There’s some people talking about the Fed having high grades. I don’t think that’s going to happen.
I think that they will be cutting in the second half of the year. I think those cuts will be very significant. I think that if I’m right on this, if you’re looking at double-digit returns without the need to take on equity risk or capital risk, I think the Treasury market’s going to deliver that this year.
Interesting. Okay. Okay, I want to get your take on that in a minute.
But before we do, I just want to stick on this theme because we were all expecting that latest press conference to offer a little bit more drama than it did. I mean, you posted on X about Trump wanting to boost tariffs, cut taxes and have the Fed’s lower rates all at the same time. But as you pointed out, that’s not exactly how monetary policy works.
I mean, we’ve already seen Trump publicly pressure Powell on rate cuts. I mean, do you think Powell will push back harder against political pressure this time around? And more broadly, I mean, how do you see the power dynamic between Trump and the Fed playing out in the months ahead? Well, here’s the structure in the U.S. It’s different than it is in Canada. The president appoints the chairman or chairwoman or chairperson, and he or she gets confirmed by the Senate, just like a Supreme Court judge.
But who is the boss? Who’s the boss of the Fed chairperson? It’s Congress. The Fed is a construct of Congress, not the president. The Federal Reserve Act is a congressional act.
So Trump can hem and haw, and he did that in 2018. And Powell still hiked rates four times. And I think that we’ll see more of that.
You know, Donald Trump said last week in an interview that he knows more about interest rates than anybody. He’s a real mogul on interest rates. I don’t know where his interest rate model is, but he knows more about interest rates than the Fed.
I mean, he said that. I guess that we’ve become sort of immune almost to some of these incredible statements. Donald Trump, what we know, loves low interest rates because he loves debt.
He knows a lot about debt, not so sure about interest rates. But I don’t think you’re going to get tariffs, fiscal stimulus, and a weaker dollar, which he wants, and lower interest rates. You know, if you’re looking at this in a psychiatrist’s office and he says which one of these pieces of the puzzle don’t fit, well, two of them don’t fit.
I mean, the dollar, if you’re running fiscal stimulus, what’s he’s doing? The stuff he’s talking about, Doge and Elon Musk, I mean, anybody who knows the numbers, the fat, the fat of the federal government level, it’s minuscule, minuscule. You know, in the context of a deficit that’s running close to $2 trillion, you’re not going to save a whole lot of money. You’d have to fire the entire civil service to get Elon Musk numbers.
But, you know, Trump wants to extend the 2017 tax cuts. That’s going to come at a huge cost. These were supposed to sunset.
It’s very interesting that everything that ever comes from the government, whether it’s spending or taxation, is always in time A viewed as temporary, and the next thing you know it becomes permanent. These 2017 tax cuts were supposed to sunset at the end of this year, but no, no, no, we’ve got to extend them and then layer on more tax stimulus. And nobody seems to really care.
You know, when Trump took office in 2016, the deficit was 3% of GDP. Now it’s 6% three years in a row. The debt was 100% of GDP.
That’s very good. Now it’s 130%. The interest coverage ratio, the debt service ratio, what’s debt service absorbing out of the revenue base was more like 8% back in 2016.
Now it’s setting up towards 20%. They’re going to start to look like Canada did in the early 1990s, and you know where that led the great white north. We almost defaulted.
We almost had a failed auction in 1993, but nobody thinks that could ever happen in the exceptional America. The hubris and the confidence and complacency is rather incredible, and I think you see that in the stock market too. But the point is that, no, all these goals that Trump has are going to lead to conflicting results as far as the markets are concerned.
I do think that this is why the Fed’s on hold right now because of all the uncertainty, and it can go either way. And I’m not even talking so much about the tariffs because I don’t believe that they will be inflationary, but what about fiscal policy? What about fiscal policy? And that’s going to be the key. I’m very bullish on the bond market, but I am actually expecting that the 38 Freedom Caucus members are going to not be yes men.
That’s my bet, but who knows how intimidated they could be. To me, it’s complete insanity to be layering on more deficits in the U.S. I think that they’re playing with fire, but nobody seems to care. But we’ll find out in due course just how brave those 38 members are.
Remember that Donald Trump only has one seat majority in the House. Remember that. Yeah, well said.
Hey, David, I’ve got to talk to you here. I’m just getting some breaking news in my ear as we do the interview. Of course, as we came on here, we were reporting about this report from Reuters.
As it turns out, Trump’s spokesperson denies the report on tariffs. This is coming from a White House briefing happening right at the time as we tape. They said that, quote, that are still scheduled to be announced in 24 hours, 25 percent on Canada and Mexico, 10 percent on China.
Quote, these are promises made and promises kept by the president. And when asked if oil would be exempted, she said that those tariffs will be for public consumption in about 24 hours. And you can read about them.
I got to get your reaction. I mean, I should just throw this away again. What do you think? You know, look, we had the same thing.
I think it was two weeks ago. I think the Washington Post had an article that Trump was going to abandon 25 percent and maybe just go in small increments. And it was based on sources from the White House, so on and so forth.
And the market sort of liked it. The Cane Dollar liked it. And then right away on his social media account, Trump says, those sources don’t know what they’re talking about.
That’s totally untrue. What I’m trying to say is that this is what is this? What are we seeing? You know what we’re seeing? You know what we’re seeing? We are seeing the Chinese zodiac playing out right in front of us, the year of the wooden horse, because the year of the wooden horse only happens every 60 years. Yeah.
So everything we’re seeing right now is a one in 60 year event. Okay. So buckle up and expect the only certainty is Donald Trump is going to create more uncertainty.
And that’s why you’re asking me before. I guess we’re going to get the gold eventually. Yeah.
Gold is 100% proportionally correlated with uncertainty. That is arguably your best hedge in this crazy world that’s become crazier. So I think that it’s the bellwether safe haven.
Yeah. And I would say this much, by the way. The fact it’s hitting new highs.
I mean, think about it. In a bull market for the U.S. dollar. Think about what that means.
Think about what that means. It’s going up in every currency terms, which is a message to investors that gold’s complexion is changing, that it is moving away from just being a commodity towards being a currency, towards being a currency, a currency that is no government’s liability. It is actually, in my opinion, the bellwether ballast in the portfolio.
Yeah. And so in any event, that is, I think, a very powerful message. You can say the same about Bitcoin, right? Bitcoin.
Look, I don’t own Bitcoin. I’ve not been a promoter of Bitcoin. But let’s just say it’s legit.
Yeah. But the thing is for investors and the people that are watching us, they have to know why have I not promoted Bitcoin is because I’m a classically conservative investor who was raised by Depression-era parents. And I don’t have enough ice in my veins to be an investor in Bitcoin, although I do understand it.
You see, the thing about Bitcoin is that it is not a diversifier in the portfolio because although it has qualities that gold has, it’s more correlated to the NASDAQ 100 than anything else because it is a risk on asset. And gold is a risk off asset. And that’s the critical difference is that Bitcoin has 20 times the volatility that gold has.
So, you know, for people out there that are my age or older, if you’re going to buy Bitcoin, I suggest that you barbell that with a pacemaker. Okay. Or at least a new battery in one that’s existing.
Okay. It’s important to obviously say that I haven’t read any tweets or any true social posts from Trump on this. This was according to the White House briefing.
So who knows what’s going to happen here. But let’s go back to the gold because obviously, you know, I want to know if it’s responding on this news. I mean, year to date, gold’s already up more than 8%.
Spot prices trading around $2,800 an ounce. By the time we’re done this segment, it could even be higher with this latest news. As I said in my intro, you know, this is the best monthly gain since March of 2024.
And this is, of course, after the metals surpassed multiple record peaks last year. Tell me, you know, not only the drivers, but what your predictions are here in gold this year with what you were just talking about there. It’s a hard asset.
It’s still the hedge play, but it’s returning some incredible returns. Look, I’ve been bullish on gold for years. And people said to me, when are you going to – when should I get out? And I said, well, when I change my name from Rosenberg to Goldberg, you’ll know that the game is up.
And we put out a report on gold last year saying we’re going to $3,000 and we’re almost there. And then I’ll have to – when we get there, and it could be weeks or months, I’ll have to revisit the call and either say I’m turning neutral or I’ve got a new target for these reasons. It is actually – I’ve got to tell you, you know, as we look at, you know, what’s happening in AI and, you know, the new competition coming our way and whether or not we’re revising expectations as to what the CapEx is going to be after two years of just watching NVIDIA and all the derivative plays.
And gold does not get much attention, but it’s an incredible story because it’s going up in the context of a bull market in the U.S. dollar, which is very unusual. And it’s gone up even in the face of higher real interest rates, which also is very unusual. I said before the complexion of gold is changing.
The things in the past that would have brought gold to its knees, higher real interest rates and a higher U.S. dollar, that’s not happening. You would think that with the stock market in the past year surging to all-time highs, that the safe haven would be going the other direction. I mean, that’s why you own gold.
It’s inversely correlated to equities. It’s why you don’t treasuries historically. They’re inversely correlated to equities.
I think that you want to have diversification. It’s not a 15-letter, a dirty 15-letter word. It actually works most of the time.
So gold is behaving differently. And as I said before, I think that a lot of it has to do – I don’t know if it has to do with the tariffs. Maybe it does.
You see, the thing is that he’s going to slap tariffs on everybody. He just has to be – he’s starting with his best friends. Now, we’re more best friends than I think Mexico is.
However, imagine starting with Canada is a message to China, which is basically look what we’re doing to our best friend and imagine what we’re going to do to you, our worst enemy. Well, maybe Russia and Iran are worse enemies, but maybe that’s Trump’s thinking. I’ll go with my friend first, show the world this is what I do to my friend, and look what I’m going to do to you.
But it’s going to be global. Like we’re starting with Canada. So this is all in the front pages of Canada.
I’m not so sure it’s in the front pages of Le Monde newspaper in Paris, okay? But in Canada, we’re consumed with it. But it’s going to go global, the Europeans, China, Japan. You think he’s going to let Japan – Japan with a dollar and a 1.55. He’s going to come after everybody.
So gold could be telling you that it’s – you want to own gold. You do want to own gold in the context of a global trade war. No doubt about it.
Yeah, no kidding. And so there’s – well, who’s going to handicap those odds except to say they’re higher now than they were before Trump won the election, okay? And then the whole fiscal thing, the whole – nobody knows. What if the Freedom Caucus has no backbone? What if he has no backbone? Do you not see what happened? Speaker Johnson almost didn’t get his – get renewed as Speaker of the House, and he did it only because on that day – Can you imagine Donald Trump getting off the golf course to make a few phone calls? Can you imagine what it takes to get him off the golf course? But you see the thing is that he is extremely powerful, extremely influential, and could pressure a lot of people.
And there’s a lot of people out there that think that the Freedom Caucus is going to lose their nerve, and we’re going to get blockbuster tax cuts. We’ll never see these spending cuts. It’s a facade.
Once Trump said during the campaign, I’m not touching entitlements, it came over. You’re not going to get that deficit down. You’re not going to get – you’re not going to touch entitlements.
Believe it. In Canada, the socialist bastion, 51st state, Governor Trudeau, we went after entitlements in the early, mid-1990s. But no, no, no, it’s untouchable.
What FDR did, Lord knows, 90 years ago, we can’t touch those. There’s not much left in the basket. So I think that gold is also responding to not just the prospect of a global trade war, but the prospect that this debt bomb is going to blow up one of these days.
And I know that people say, well, that’s the boy who cried wolf, to which I say, well, remember, the wolf does show up at the end of the story. So in a global trade war, gold will be a bastion of stability in massive instability and the fiscal situation in most parts of the world. I’d say that Canada, by the way, is the cleanest shirt in the laundry basket when you see what’s happening in Europe and in core Europe, the UK, the United States.
And so I think that now that people are saying, well, the Fed’s not playing ball, debt service costs are only going to go up, further ensnare fiscal finances, that since Trump was last in power, let’s face it, the share of government revenues going to service the debt has doubled. And that’s what you have to pay attention to, is the government interest coverage ratio. It’s really disturbing.
It’s not the debt ratio alone, it’s the debt servicing ratio. And we’re getting to a point where the U.S. is following in Canada’s footsteps in terms of this deficit becoming structural and intractable. And it’s another source of financial instability.
So I would say that, yes, I get asked all the time, should we be thinking asset mix 60-40, 60-30-10? I think if Warren Buffett has, you know, what is it, $325 billion of cash for the first time ever, you know, well, cash is making it 4.5%. You know, back in 2022 when stocks and bonds, you see 60-40 didn’t work that year, did it? But you couldn’t even be, I mean, cash was zero. Now it’s paying you 4.5%. Cash is not trash. However, I think that whatever your portfolio is right now, you ought to be thinking of hard assets.
Gold is part of that. Silver would be part of that. I mean, metals in general, I think farmland.
I think you ought to be thinking in an unstable world. Unstable world, you want to have things that are real in an unstable world, things that are tangible. And so that’s maybe what the markets are telling you about gold, because what is more tangible, right? It’s true.
And I mean, you know, there’s also this new trend, this new report. I mean, gold is vanishing from London vaults as traders rush to New York, bracing for potential tariffs on bullion. We’re not sure about that, but there is a new report from the Financial Times revealing that traders have pulled out $82 billion, $82 billion worth of gold from the Bank of England’s vaults, shifting it to New York’s Comex Exchange and private U.S. vaults.
The reason? Well, like we’ve been talking about, this uncertainty over Trump’s trade policies. And while he didn’t explicitly target gold, concerns are growing that this broad tariff agenda could extend to raw materials, including bullion. That fear has set off this whole scramble.
I want to get you to comment on this. I mean, what are your thoughts? Obviously, even more of a bullish case for gold, I take it? Oh, I think it is. Well, look, I don’t know the first thing about it, but, you know, it’s just another source of uncertainty.
Look, there’s something bigger out there, OK? Look, let me give you an example. I did a podcast two days ago. One of the participants quoted somebody who was very credible from a meeting he was at.
This credible person reportedly had lunch with Scott Besant, and Scott Besant said that he has a plan that will crawl the United States out of its debt morass. You know what that is? That they’re going to force a debt restructuring on foreign investors in U.S. Treasuries. Interesting.
No, it’s not interesting. It’s ridiculous. I guess it’s interesting in the sense that if it’s true, and Scott Besant is the smartest person around in the whole Trump orbit.
If that’s what he’s thinking, well, think about that. When I was on the podcast and I heard this, I said, well, but U.S. Treasuries are pari par su. Every creditor gets treated the same.
So if he’s going to screw the foreign investor, so he’s going to want to renegotiate lower coupon and 100-year bond and replace what they currently have. So I said, well, if he screws the foreign investor, they’re going to screw U.S. mutual funds, pension funds, life insurance companies, banks, and people that have their money in Treasuries in their 401ks. And so I was told, no, no, no, this is not going to be applied to U.S. holders of Treasuries, just foreign holders of Treasuries.
Well, that’s a technical default. Yeah. That’s a technical default.
The rating agencies, they would pull the U.S. rating. Now, I don’t know what else Donald Trump would have up his sleeves that would pressure these other countries to accept these terms. I don’t know.
But, you see, this is the sort of thing, it goes from a lunch, private lunch, to a conference, to a podcast, to me talking about it with you in front of your viewers. Right, right. I don’t know what’s true.
I don’t know what’s fiction. I know that if the U.S. went down that slippery slope, but maybe this is part of the bold, beautiful plan. I don’t know.
But can you imagine the world’s reserve currency engaging in that default? Well, I’ve been saying gold’s going to $3,000 for a long time. But I think if you think about what the implications are, something like that, you’re going to add a zero to that number. So this is what we’re talking about here.
You know, this is actually, you know, think of the flurry of executive orders that the president signed. I can’t believe that his hand isn’t numb. And I think it’s really, I’m not making a value judgment here.
I think it’s capable of anything or capable of attempting anything. And the one thing that people have to know about gold, what are the properties about gold? Here’s gold. Here’s the quotient, you know.
You can look at the equity market and do your dividend discount model, do your bonds and do your real interest rate term premium model and inflation expectations. Do your credit spread model for corporate credit on default risk and recovery rate. What is gold? How do you value gold? How do you value gold? And I’ll give you the quotient.
It’s one divided by T, where T is trust. And that is exactly what’s happening right now. It’s pretty wild to imagine the world that that takes place.
You’re talking about, you know, like you said, adding another zero on to a gold price. I mean, it would totally up and upheaval. No, I’m saying that.
But that would be my forecast. I mean, the thing is that this is a really crazy times with crazy ideas. But Donald Trump thinks that he got elected again to shake things up.
And he wasn’t prepared. You see, the thing is that he wasn’t prepared to become president in 2016. He thought he was going to lose.
So he was scrambling a lot. He knew he was going to win this past election. And he spent a lot of time preparing.
He is much better prepared. He has a plan. I don’t know.
But he is remarkable at putting into the system tremendous instability. I think he likes making not just his adversaries, but look in Canada, his friends, pretty unstable. I keep on saying gold is that hedge against instability.
And his presidency is just starting. Something tells me we’re going to get to $3,000 on gold in the next few months. I have a meeting with my team.
And we’re going to publish a new report with a new and higher target. The thing about gold is it’s not the easiest thing in the world to predict the price. It’s not as exact a science as other asset classes.
However, I would say that you can actually do math on the gold mining stocks. Bullish? Huge discounts. I don’t even know if there’s anything, including treasuries, that I am more bullish on than the gold mining stocks right now.
Well, they haven’t had much love. And this is a good opportunity to kind of talk about equities. Because you recently posted on X saying that U.S. households have a higher concentration of equities today than they did during the internet mania in the mid to late 1990s.
And on top of that, there’s an added layer of concentration in tech stocks, ETFs. We did see Nvidia lose almost $600 billion in market cap, which was the biggest one-day loss in U.S. history. This brings us to the next point here.
I mean, we were talking about mining stocks not keeping up with or even at all catching up to metal prices. But what’s your market forecast for the stock market going forward for this spring? Yeah, I don’t – look, I am bearish on the U.S. stock market. I’ve been bearish and wrong on the U.S. stock market.
It is the valuations. I mean, when you’re dealing with a 2.3 standard deviation event, looking at practically every single valuation metric. But people like to buy it.
They want to buy an asset class that is just far too expensive. I think these companies are great, the best companies in the world. The best companies in the world were also there in the late 1990s.
It didn’t stop, and it wasn’t about just dot-coms. You had Cisco and Microsoft and Intel and Dell and IBM, and some of these stocks went down 70%, 80%. They’re still around today.
It’s not about the companies. The companies are great. It’s what investors have done to the stock price.
It’s not about what the companies have done. The companies are great. It’s not about I am not bearish on the companies.
I’m bearish on the fools that have bid up the stock prices to unsustainable levels based on their own business models and the prospects of the profitability that they’re going to engender. You have a situation now where it’s so ridiculous that if you’re taking a look at the five-year earnings growth, five-year average earnings growth that are embedded in S&P 500 valuations is over 20%. That’s where it was during the Internet mania that morphed into a bubble.
Was that sustainable? No. Over history, 100 years of history, the normal five-year earnings growth that the S&P 500 companies deliver is 7%, 8%. On the eve of ChatGPT and NVIDIA’s revelation on generative chips, it was about 10% that was priced in on a five-year basis.
The mania was already starting, and now it’s a bubble. It’s a full-fledged bubble, full-fledged price bubble. And you don’t have to compare it to the dot-coms, but you compare it to the Internet era because that was more than just dot-coms.
It was the whole, what we called back then, TMT. When I was at Mother Merrill, TMT, technology, media, telecom, because you couldn’t tell them all apart. And, yes, so it’s a huge bubble.
70%, when you look at the FEDFLOW fund, 70% of household assets, financial assets or inequities, 10% of bonds, 20% of cash. We’ve never been to 70% before. Concentration on risk, as far as equities are concerned, higher than it was in the late 1990s.
And even for people like me, the baby boomers, the boomers should be 30%, 40% equities. We don’t have the, you know, the sunglasses working against us. The typical boomer is more than 60% in the stock market.
Crazy, crazy. 70%, nobody has rebalanced. Nobody has taken profits.
And diversification has become, for many people, a dirty 15-letter word. So we have a concentrated stock market in that 42% of the S&P 500 is technology. The bubble invariably is in technology because technology is so sexy.
And that’s when you get these fundamental shifts in the innovation curve. When you get fundamental shifts in the innovation curve, it’s not coming from Coca-Cola, okay, or McDonald’s. It’s coming from, you know, companies.
Some of them are brand spanking new. This time NVIDIA, you know, before. Call it, you know, Microsoft, Intel.
Remember when Intel was an exciting company back in the 1990s? Now it’s a dinosaur. But technology is the share of the market in tech is 42% where it was, by the way, in March of 2000 at the peak of the NASDAQ bubble. So you’ve got concentration risk leader on concentration risk.
Very concentrated stock market. And then you’ve got a very concentrated in terms of risk concentration on household balance sheets. And on top of that, people don’t even know what they own.
You can’t even talk, you know. You’ve got a situation now, another layer of concentration, which you just mentioned, which I’ll expand on. That 60% of the market cap now is passive index investing.
Passive index investing. John Bogle, Jack Bogle, when he unveiled the Vanguard index fund in the 1970s said this market will never get the 20% market cap. It’s now 60%.
Because low cost. And you’re buying the S&P 500. You’re buying the index.
So you don’t even know what company you’re buying. You’re buying a concentrated index. People in the 401ks don’t even know what the hell it is they’re even doing.
In the old days, you see, and active managers, active managers beaten up so badly because how can you beat the S&P 500 unless you take on concentration risk? And this is where it’s the dog chasing its tail. How can an active manager ever beat the index without taking on massive concentration risk, which they get paid not to do? They’re in a no-win situation. It’s like what happened with Nortel.
You didn’t know Nortel in the late 1990s. See you later, Charlie. Yeah, we’ll see what happened to those people that fired their brokers and thought they all just buy the index.
Sure, good luck with that. At least active managers, they’re human beings. They’re going to get calls right and calls wrong just like I will, but they do their homework.
They do their homework. They look at financial statements. They look at valuations.
They look at fundamentals, look at technicals. If they have to move you into cash, they’ll move you into cash. An index fund won’t do that for you.
Index fund will not do an asset makeshift for you. An index fund will not sell this and buy that. In the old days, you had a broker, you had an active manager, you had 12 stocks.
He’d call you up and he’d say, we’re going to sell Exxon. We’re going to buy GM. This is what we’re going to do.
Now it’s like people don’t even know what it is they own. And I’ll tell you that when we go to the other side of the mountain on this market, because bull markets and bear markets join at the hip, okay, there’s no such thing as a bull market without a bear market and a bear market without a bull market. Okay, it’s just the cycle.
People believe we’ll never see a recession again. And people believe that we’ll never see a bear market again. I cannot begin to tell you how people think that not just the business cycle, but the market cycle has been repealed.
I cannot tell you the things that I hear. Okay. There is a Hebrew word for it.
It’s called shtuyot, which is basically bullshit. And some of the stories, I can’t even begin to tell you that everything has been repealed. When we go to the other side of the cycle and people are going to head to the exits, we’ve never had this concentration risk before.
Everybody is all in on the same trade at the same time, Jeremy. And when they go into the exits, right, it’s going to be like the toothpaste in the tube. There’s no liquidity on the other side because everybody is all in.
You have one person in the world that is sitting on cash, one person. His name is Warren Buffett. And I don’t think even he has enough cash.
He’s going to be able to mop up. And I’m saying to people on the call, you do want to have hard assets in a troubled world. You want to have gold and you want to have liquidity.
You want to have liquidity buffer. And I’ll tell you why. Because someone’s got to be there.
This is a public service, a public service to have cash. And when people say to you, you have cash, oh, my God, you’re such a loser. You’ll say, no, I’m actually doing this for the public good because when the you-know-what hits the fan, I’ll be there with the liquidity to help pick up the pieces.
And I’m telling you, there will be panic. And I want you to save this video because I know that when I talk about this, people just laugh at me like I’m Darth Vader. And, you know, oh, he’s just this radical perma-bear.
No, no, I’m not a perma-bear. I have made a career out of keeping people out of trouble, keeping people out of trouble. I play the bands very narrow, which is true.
I bunt for singles. If I get a double, a double for me is like a home run for everybody else. That’s fine.
But I’m going to tell you something. I’m very nervous, very nervous about the concentration of risk. And when the panic sets in, let me tell you something.
It will look like something that we haven’t seen before. I think I just sound like little Trump. It will be something like we’ve never seen before.
I’ll tell you something. You want to be in gold. You want to be in treasuries, in my opinion.
I think they’re going to rally second half of the year. I think the economy is going to get very weak. Inflation will come low.
I think you have a nice trade in treasuries. But I think you’re going to be paid to be in cash. And gold to me is as much of a no-brainer as there is a no-brainer in our industry.
T-bills, cash, and gold. Sounds like a perfect little balance there. All right, David Rosenberger.
Always a pleasure, my friend. We’ll get you on when you release this new gold report. I want to get your feedback on it and a new updated price target.
We’re putting a report next week on the gold miners. Okay. Well, we’ll send everyone out there.
That’s the big opportunity right now. The big opportunity. All right.
David Rosenberger is the Chief Economist and Strategist at Rosenberger Research. I know I was surprised. But you will have a lot of our viewers excited to hear that the mining stocks and those equities will finally get a little bit of love because they sure haven’t in the past year.
All right. Thanks for this, Dave. I appreciate your time.
Okay. All the best. Okay.
We’ll talk soon. I’m Jerry Safran. For all of us here at Kitco News, thank you for watching.
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