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Pretiorates’ Thoughts – The Bulls Are Dancing Near the Fire

The first stress test for the new Fed Chair, Kevin Harsh, has long since begun. The yield on 30-year U.S. Treasury bonds has already touched the 5.3% mark in recent weeks. Treasury Secretary Bessent has tried to take some pressure off the U.S. debt bubble—but so far with rather limited success.

In Jackson Hole last Friday, Harsh’s speech did at least one thing: trigger a sharp sell-off in precious metals. Otherwise, the market is still puzzling over exactly what he actually meant to say. Communication, in any case, does not seem to be his strong suit.

Whether the market and its participants will have to get used to Harsh—or whether Harsh will eventually have to adapt to the market—is a question best left to the philosophy department. Historically, however, the matter is less philosophical: Following the inauguration of the 16 new Fed chairmen since 1914, the stock market has, on average, experienced a correction of 10.5% within the first six months. The average maximum decline during those first six months was actually 15.2%. New Fed chairmen thus seem to have a certain tradition of initially underestimating Wall Street’s sensitivity. Alan Greenspan learned this the hard way in 1987, with a 23% drop after just two months. Paul Volcker in 1979 and Jerome Powell in 2018 also learned quite quickly that the stock market doesn’t automatically roll out the red carpet for new leaders.

Wall Street measures the extent of these fluctuations using the VIX volatility index. The more nervous the market, the higher the VIX—which is why it’s not without reason that it’s called the “fear gauge.” A few months ago, in Pretiorates’ Thoughts, we already pointed out that the VIX had been tracking the average seasonal pattern since 1991 with remarkable precision. Well, at least until August. Since then, the market seems to have decided to rewrite the script of the past 35 years without further ado. The correction that was actually due has either been called off or is taking its sweet time…

A correction in IT and AI stocks, on the other hand, already took place in July. In Korea in particular, investors took a real beating with credit-financed stock purchases—so-called margin debts. In the U.S. as well, margin debts indicate that speculation with borrowed money has recently been fueling another round of champagne celebrations. Whenever this debt rises too sharply within a 15-month period, it’s a fairly reliable sign that greed is slowly unbuckling its seatbelt. Still, last month, margin debt in the U.S. declined for the first time in quite a while. That’s generally reassuring. However, it remains at a high level. Should a sharp correction suddenly occur, these credit-financed investments in particular could come under massive pressure—and forced sales could quickly turn a normal correction into a self-reinforcing market decline.

Any reader of Pretiorates’ thoughts knows that we remain extremely optimistic about AI and quantum stocks for the coming years. Quantum computers, with their enormous computing power, could catapult AI to an entirely new level—not to mention that AI itself is currently making strides so rapid it’s hard to keep up. In short: We probably haven’t even seen the opening credits yet…

That doesn’t mean, however, that these stocks are immune to corrections. On the contrary: We’re quite amazed at how tenaciously the stock markets are defending their current levels. For while stock prices are pointedly maintaining their composure, the bond markets—with rising yields—are shaking the foundation ever more vigorously. At the same time, the geopolitical developments in Iran and Ukraine certainly give us no reason to break out the party hats just yet.

After a long bull market, however, stock markets practically never simply change direction from one day to the next. That’s exactly what our Chart of the Week illustrates. If we compare the performance of the S&P 500 between 1995 and 2002 with that since 2022, the picture that emerges is nothing short of astonishing. Essentially, we’re comparing the Internet age with the AI age. The correlation coefficient stands at an astonishing +0.98—which is very close to mathematical perfection. If the current market continues to follow this trajectory, we could be in for a wild roller-coaster ride from now until spring 2027, though the market could ultimately remain above today’s level. After that, however, the historical pattern would point to a multi-year bear market. Exciting? Definitely. A guaranteed stock market roadmap? Certainly not. Above all, the chart shows that investors, acting as a herd, repeat the same mistakes, fears, and bouts of euphoria with astonishing frequency. But any comparison only holds true as long as it holds true. Anyone who doubts this is welcome to take another look at the VIX chart from earlier.

But even if the future trajectory were to eventually deviate from the pattern seen between 1995 and 2002, that would by no means be a free pass for the bulls. The market has recently begun to price in another interest rate hike. Currently, a rate increase of a quarter of a percentage point is expected soon. This is not bullish for the stock markets—and certainly not for Nasdaq stocks, which often pay no dividends.

And although market yields have already risen sharply—making it increasingly difficult to sweep the U.S. debt problem under the rug—the market is currently pricing in a total interest rate hike of half a percentage point by mid-2027.

This is likely one reason why hedge funds have recently shifted their net exposure back toward short positions.

If even professional speculators are becoming more cautious, we “ordinary” investors don’t necessarily have to be the last ones to storm the dance floor. After all, there are quite a few fuses lying around right now. And on the stock market, it sometimes takes surprisingly little spark to turn them into a pretty big fireworks display.

We wish you successful investments!

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Pretiorates’ Thoughts – Don’t fight the Treasury

This week is one of those stock market weeks where forecasts are about as useful as weather forecasts for a wandering hurricane. Tomorrow, Wednesday, after the market closes, Nvidia will report its quarterly earnings. On Friday, Jackson Hole follows, where Fed Chair Kevin Warsh will deliver what is likely to be his most important speech since taking office. Two events, two potential price fireworks.

That’s why we’re sparing ourselves the effort today of trying to assess the markets for the coming days. The sidelines are our preferred spot. Nvidia could once again give the AI euphoria rocket-fueled momentum—or explain to the market that even trees don’t grow to the sky with GPUs. And with Warsh, every word is likely to be dissected anyway. This is especially true because he hasn’t yet managed to convince the market when it comes to communication.

We’d rather use this waiting period to focus on Scott Bessent and the U.S. Treasury Department. Because while all eyes are on the Fed, a remarkable shift is taking place in the background.

The trigger is the Treasury Department’s decision to significantly expand its repurchases of long-term Treasury bonds. For certain maturities, the maximum volume per repurchase is increasing from $2 billion to at least $4 billion. The term ‘Bessent Put’ quickly began circulating online: the Treasury is propping up the bond market and essentially engaging in quantitative easing through the back door.

It sounds spectacular. But it’s only partially true.

First misconception: The Treasury is buying back old, low-interest bonds and replacing them with new, much more expensive debt. That sounds like someone canceling a 1.5 percent mortgage to take out a new one at 4 percent. However, this overlooks the fact that many old bonds are trading well below par. The Treasury therefore pays significantly less than the original face value when repurchasing them. Higher interest costs can thus be partially offset by a lower principal amount.

Second misconception: The buybacks are an American version of Japan’s yield curve control (YCC). With QE or YCC, the central bank buys bonds using newly created reserves—that is, with newly created dollars. With the Treasury, however, things work differently. It repurchases old debt and ultimately finances this through revenue or new issuances. The Fed is not involved, and no additional bank reserves are created.

So why is Bessent doing this?

Because the U.S. bond market is littered with old bonds that are about as popular today as a fax machine at an AI conference. Bonds with yields below two percent are currently trading at significant discounts and are, in some cases, illiquid.

The Treasury replaces old, hard-to-trade securities with fresh ones. This improves liquidity and can reduce pressure on long-term bond prices. This is the core of the ‘Bessent Put’—less a secret money-printing machine than active market-making. It actually injects liquidity into the illiquid market for long-term bonds.

Things get really interesting with the latest idea, which brings the Treasury General Account (TGA) into play. Put simply, the TGA is something like the U.S. government’s checking account—its current account at the Fed: taxes go in, government spending goes out.

Recently, headlines have been circulating that Bessent could mobilize nearly one trillion dollars from the TGA to finance buybacks. In fact, the TGA is currently quite well-funded at around $950 billion, and according to the budget, it’s expected to grow further to about $1,050 billion by the end of October. In recent months, it has fluctuated between $800 billion and $1,000 billion.

That sounds like a bazooka. Technically, it’s about as surprising as the news that you’re paying the restaurant bill from your own bank account. Every dollar the Treasury spends goes through the TGA—including, of course, a buyback. So what matters isn’t whether the Treasury uses the account, but whether it deliberately reduces the balance more aggressively, thereby postponing the timing of new bond issuances.

That’s exactly where things get interesting for the markets. Reducing the TGA balance can inject liquidity back into the financial system in the short term. But the fundamental problem remains: the U.S. continues to run enormous deficits. Repurchased debt therefore doesn’t magically vanish into the mountain air of Wyoming. Sooner or later, new debt will be needed. Bessent can postpone the timing and change the structure—but he cannot change the math. This simply means that the liquidity currently used for redemptions from the TGA will have to be replenished at a later date through the issuance of new Treasuries.

There is, however, one problem that should not be underestimated: The government will reach the $41.1 trillion debt ceiling by the end of this year or early next year. Unless Congress raises the debt ceiling in time, the government will have to draw on the TGA to finance its ongoing deficits. If Congress fails to raise the debt ceiling for an extended period, the Treasury Department will have to exhaust the TGA down to the last available dollar. However, if the Treasury uses a significant portion of the TGA as early as September and October to finance buybacks, it will have less cash later on to bridge the debt ceiling debate—and correspondingly less time before funds actually run short.

Furthermore, this strategy has an interesting side effect. If long-term debt is increasingly replaced by shorter-term debt, debt service becomes more sensitive to short-term interest rates. The old bonds with interest rates below 2 percent are simply cheaper than new, shorter-term bonds with interest rates of 4 percent or higher. Paradoxically, this increases pressure on the Fed to keep these interest rates low. The Treasury and the Fed are thus increasingly in the same boat.

And with that, back to Jackson Hole, Wyoming. On Friday, Warsh will speak about inflation and monetary policy—at 10:00 a.m. EST or 4:00 p.m. CET, and this can be followed live here. It will be at least as interesting to see how he reacts to a Treasury Department that is acting ever more aggressively on the Fed’s turf. Warsh wants to fight inflation and keep interest rates high accordingly. But Bessent is interfering more and more in the Fed’s territory—and the Treasury has a very strong interest in lower interest rates.

Perhaps the old adage still holds true: “Don’t fight the Fed.” But some market participants are already rephrasing that old mantra: “Don’t fight the Treasury.”

By next Monday, we’ll likely know who actually had the bigger bazooka this week. Precious metals and cryptocurrencies have apparently already made their decision: in any case, they’ve been behaving in recent days as if the U.S. financial market were facing lower interest rates.

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We wish you successful investments!

Yours sincerely,

Pretiorates

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Pretiorates’ Thoughts – Bessent Blinks at 5.3%

There’s quite a bit to talk about right now: The U.S. stock markets continue to hold up surprisingly well near their all-time highs, while precious metals appear to have finally broken out, bringing an end to a correction phase that lasted about half a year. However, it’s unlikely that Gold and Silver will sprint back to their peak levels at record speed just yet. That will require a bit more groundwork. But the broader conditions are beginning to shift in favor of precious metals again: First, the U.S. Dollar appears to have largely exhausted its bullish momentum, and second, the U.S. Treasury is now intervening in the interest rate landscape—which could mean that real market yields have also peaked for the foreseeable future. But first things first:

Let’s recall the carry trade in the Japanese Yen. For new subscribers, here’s a quick recap: Many investors have taken on debt in Japanese Yen at extremely low interest rates in order to then invest the equivalent amount at higher yields—for example, in U.S. Treasuries. To do this, the borrowed Yen must, of course, first be exchanged for U.S. Dollars. The interest rate differential is the profit—as long as a stronger Yen doesn’t put a damper on this lucrative deal. After all, at some point the loan must ultimately be repaid in Japanese Yen. So far, however, the strategy has been highly profitable: thanks to the falling Yen, investors were even able to reap substantial currency gains on top of that. Just how large is the volume of these Yen carry trades? No one knows for sure. Some estimate it at many hundreds of billions, while others put it at several trillion.

The current situation: Japanese market yields have risen sharply in the meantime, and new loans at rock-bottom interest rates are no longer available. This means the moment is approaching when many of these loans will have to be repaid. To do so, U.S. Treasuries are being sold, and the U.S. Dollars received from these sales are being exchanged back into Japanese Yen to pay off the loans.

Then there are the Japanese investors themselves. And, as is well known, they aren’t exactly short on cash. While Japan does have one of the highest levels of public debt in the world—measured as a percentage of GDP—Japanese investors could, in theory, finance this debt with their own savings—in stark contrast to the situation in the U.S. However, because interest rates in Japan have been extremely low over the past 30 years, many Japanese, just like professional investors, preferred to invest their savings abroad for higher returns—for example, in U.S. Treasuries. To do so, they first had to buy U.S. Dollars and sell Japanese Yen.

The current situation: Japanese investors are now once again earning quite respectable returns in their own country and in their own currency.

To prevent Japanese investors from selling their U.S. Treasury holdings, the U.S. Federal Reserve is offering the FIMA Repo Facility. This allows Japanese investors to lend their U.S. Treasury bonds instead of selling them and receive U.S. Dollars in return. This way, the bonds do not have to be sold on the open market, and market yields would not be driven up as a result. It’s a nice idea, but why would Japanese investors do this—instead of simply cashing out their investments?

With their investments in U.S. Treasuries, they have also—thanks to the depreciation of their own currency—accumulated huge currency gains in U.S. Dollars. In the past five years alone, the U.S. Dollar has risen by no less than 45% against the Yen. No one would likely hold it against Japanese investors if they were now to sell their U.S. Treasuries and, in the process, pocket the currency gains as well. To do so, they would have to sell their U.S. Dollars and buy Yen again.

With approximately 1.1 trillion U.S. Dollars, Japanese investors are the largest foreign investors in the U.S. Treasury market. And they have already begun selling off their holdings.

China, on the other hand, still holds about $600 billion in U.S. Treasuries, though it has been reducing this holdings for more than 14 years.

To summarize: Two very large investor groups in the U.S. Treasury market have entirely understandable reasons for reducing their positions: those investors who have financed their investments through Yen carry trades, and the Japanese investors themselves.

It is therefore hardly surprising that the yield curve in the U.S. Treasury market has undergone a remarkable reversal over the past twelve months. In the chart, the light blue line shows that a year ago, short-term yields were even higher than long-term yields. Since then, short-end market yields have fallen and have remained virtually unchanged since the end of last year. At the long end or at the far right end of the chart, however, the situation looks quite different: yields there have continued to rise. Market professionals refer to this as the yield curve becoming steeper at the long end.

In fact, the yield on 30-year U.S. Treasuries clearly illustrates what has happened: from a low of around 1% in the first quarter of 2020, it has since risen to 5.3%.

When interest rates rise, investment in the economy declines and economic growth slows. In fact, the Citi U.S. Economic Surprise Index already indicates that recent economic data has been largely disappointing. Strictly speaking, that would be an argument for lower interest rates again.

But then there’s the U.S. national debt—an issue that is likely to return to the forefront very soon. In a few weeks, the U.S.’s total debt will exceed the 40 trillion U.S. Dollar mark. This is likely to reignite the debate, which doesn’t exactly make investments in U.S. Treasuries more attractive. Consequently, market yields are rising. The law of the market is, after all, not very romantic: those who take on more risk also demand a higher return. Incidentally, at nearly 1.4 trillion U.S. Dollars, the annual cost of servicing the U.S. national debt is now higher than the GDP of more than 175 of the world’s 195 countries.

The futures market is also reacting: Hedge funds’ large short positions in the Japanese Yen have recently been drastically reduced.

Thus, this week’s summary highlights much of what we already knew about the current situation in the U.S.—but now with a much bolder stroke:

1. Yen carry trade investors are likely to sell U.S. Treasuries and U.S. Dollars and buy Yen instead.

2. Japanese investors are also likely to increasingly sell off their U.S. Treasury holdings, while simultaneously realizing their profits in U.S. Dollars and buying Yen as well, in order to reinvest the capital more heavily in the domestic market.

3. The U.S. Treasury is aware of this, is concerned about the Yen’s weakness, and—for the first time since 1998 during the Asian financial crisis and 2011 following the Fukushima disaster—intervened jointly with the Bank of Japan just under ten days ago. This is less a friendly favor to Tokyo than an expression of concern for the U.S. Treasury market.

Today, the U.S. Treasury Department also announced that it would increase repurchases of long-term U.S. Treasury bonds with a 30-year maturity from $2 billion to $4 billion.

Now, one might argue that an additional $2 billion in this gigantic market makes about as much of an impact as a glass of water in a swimming pool. And indeed: purely in terms of volume, the effect is modest. But what matters is the message and the timing—and they reveal a great deal between the lines:

1. A market yield of 5.30% on 30-year U.S. Treasuries seems to be slowly becoming the pain threshold.

2. Apparently, the U.S. Treasury Department is prepared to bring the first elements of yield curve control into play to defend this pain threshold.

3. Just two weeks ago, the U.S. Treasury presented its planned schedule for buybacks this quarter. That’s why today’s update comes as a complete surprise. Nerves are clearly on edge.

The increased buybacks will dampen the pressure, but not eliminate it entirely. This is also not quantitative easing—that is, not classic QE. Nor are any additional U.S. Dollars being printed. But the market now knows at least this much: U.S. Treasury Secretary Scott Bessent’s pulse is likely to beat a little faster at 5.3% on the long end.

This situation is particularly positive for precious metals, whose “insurance premium” is likely to become more expensive again: a U.S. Dollar facing selling pressure; interest rates that can hardly be allowed to rise much further; and U.S. government debt that is once again coming into sharper focus.

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We wish you successful investments!

Yours sincerely,

Pretiorates

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Pretiorates’ Thoughts – From Margin Calls to Bargain Calls

At the end of June, we warned that margin calls—that is, leveraged investments—could lead to a sharper correction. The correction did indeed come. However, it didn’t quite follow our script: Instead of affecting the overall market, it hit AI stocks the hardest. Even reports from South Korea indicated that numerous investors lost everything they had through speculative trading on credit. Still, we stand by our view: Margin debt remains a hot topic...

Our own AI Index vividly illustrates just how severe the correction was: In extreme cases, it lost over 45% in less than two months. That’s no longer just a minor dent.

What’s interesting, however, is what’s happening beneath the surface. The after-hours activity of our AI Index shows that massive accumulation has been taking place behind the scenes for a few weeks now—even though the index itself is still falling. So while selling continues at the front, shopping carts seem to be filling up again at the back.

A very similar picture emerges in our Quantum Index. In mid-May, accumulation practically stopped overnight—and since then, the Quantum Stock Index has also lost more than a third of its value. But here, too, the picture behind the scenes is already shifting again: accumulation has long since resumed.

We are convinced that the computing power of quantum computers will expand the capabilities of AI many times over. And not sometime in the distant future, but within just a few years. The management teams of the hyperscalers are likely convinced of this as well—otherwise, their incredible investments, which now run into the trillions, can hardly be explained. So here’s a little reminder to everyone talking about an AI bubble: Are you really convinced you’re smarter than the management teams at Microsoft, Alphabet, Nvidia, Amazon, Meta, or SpaceX??? Perhaps the current correction in some AI stocks is less of a warning sign and more of an opportunity?

In our latest issue, we also speculated that the Bank of Japan’s meeting might be more important than that of the Fed, which took place exactly two weeks ago. We received remarkable confirmation of this as early as the beginning of last week. For the first time since 1998 and 2011, the U.S. central bank has helped prop up the Japanese yen. 1998 was marked by the LTCM and Asian crises, while in 2011 Japan had to cope with the Fukushima disaster. The fact that the Fed is now supporting the yen for the first time since then should clearly demonstrate how seriously central banks are taking the current developments among the major currencies.

Japanese investors are the largest foreign buyers of U.S. Treasuries. If their own currency falls, the temptation to sell these investments—along with substantial currency gains—naturally increases. However, if Japanese investors were to exit the U.S. Treasury market on a large scale, U.S. market yields could rise even further. Then a currency problem would suddenly turn into a bond problem—and the high level of U.S. debt would be back in the spotlight faster than Washington would like. It is therefore hardly surprising that the U.S. Treasury has a very strong interest in helping the yen regain its former strength.

It is therefore quite possible that at its next meeting in September, the Bank of Japan will have to deploy what is arguably its most effective tool for strengthening the currency: higher interest rates.

This, however, brings us to the next topic we’ve discussed here on several occasions: carry trades—that is, positions financed by borrowing that take advantage of Japan’s very low interest rates to invest profitably in other currencies.

No one knows exactly how many billions—or even trillions—of these positions are still outstanding. We have often speculated that at some point these positions will no longer be refinanced, which would likely cause the yen to rise. So far, however, there has been little reason for the holders of such carry trades to rush. Although interest rates have risen, they remain comparatively low worldwide. At the same time, the yen has fallen, making repayment even cheaper. But with every interest rate hike by the BoJ—and as the yield spread between U.S. Treasuries and Japanese bonds narrows—interest in continuing these trades is likely to wane. When the loans are finally repaid, yen will have to be repurchased to cover them. And that is precisely what could give the Japanese currency a strong boost.

Is this scenario just speculation? Yes. But the alternative isn’t necessarily more reassuring. Should the yen continue to lose value, the resulting tensions could eventually spill over into the U.S. Treasury market—and things there would likely become quite uncomfortable and, above all, very expensive.

Over the past 30 years, the Japanese yen has been, in a sense, the “academic gold.” Just over twenty years ago, gold and the yen were quite comparable: neither paid interest. Mathematically minded investors, however, saw at least some “equivalent value” in the Japanese currency. That perspective has since shifted again. This makes what we’ve been observing for the past few weeks all the more interesting: gold’s Power Index is once again showing a clear upward trend…

Incidentally, it’s also intriguing that market discussions are already speculating about a possible replacement currency for the yen carry trade—a currency that also offers low interest rates. The candidate? The Swiss franc. But that’s a topic for a future issue of Pretiorates’ Thoughts …

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We wish you successful investments!

Yours sincerely,

Pretiorates

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Remember, we are not making any recommendations for investments, we are just giving you ideas for your own analysis and decisions! Do your own due dilligence!

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Pretiorates’ Thoughts – From Carry Trade to Scary Trade

As we write this new issue of Pretiorates’ Thoughts, the U.S. Federal Reserve (Fed) has not yet announced its interest rate decision. Whether it raises the benchmark interest rate by a quarter of a percentage point, as the bond market has already priced in, or decides against it, we do not consider this to be the decisive factor. In the short term, Wall Street will of course react to the decision—though likely not with stoic composure.

The reason is that the market is still struggling to assess how the new Fed Chairman, Kevin Warsh, will communicate. In any case, Wall Street is openly displaying its nervousness: The Dow Jones is down about 800 points, and market participants are so unsettled that even small bets ahead of the decision suddenly seem like high-risk ventures.

You can’t really blame the market. The Fed Chair’s aversion to traditional “forward guidance” increases unpredictability—and, as is well known, unpredictability is just a fancier word for uncertainty on the stock market. At the same time, the market is feeling increasingly uneasy given the high valuation levels and the geopolitical developments that are nearly impossible to assess. The stock market has already reacted accordingly: Investors have already sold off cyclical companies—which are more dependent on a robust economy—as well as more speculative sectors, many of which still lack significant cash flow. The latter, of course, include numerous stocks in the AI and quantum sectors.

Nevertheless, we stand by our assessment: Both of these still-young sectors are likely to reach new heights, especially if they converge in the not-too-distant future. We therefore believe this is more likely to be a fierce summer storm than the definitive bursting of the bubble. Furthermore, our Quantum Strength Index has now reached its lowest level since February 2025—precisely the point in time when the penultimate major uptrend began.

Currently, Wall Street favors defensive stocks—that is, companies that offer products for everyday needs and are less easily disrupted by economic cycles.

In the medium to long term, however, the Bank of Japan’s interest rate decision this coming Friday is likely to carry greater significance. In economics, one learns that interest rate differentials have a decisive influence on currency movements. In practice, however, the market doesn’t always follow the textbook. The yield spread between 10-year U.S. and Japanese government bonds has narrowed significantly in recent months, as shown by the light blue area in the chart below. One would therefore expect the Japanese yen to have gained ground against the U.S. dollar. But far from it: the yen continues to lose value, as shown inversely in the chart.

As recently as the spring of 2025, speculative investors in the futures market were betting on an appreciation of the Japanese currency. At the time, the market assumed that the many billions in loans taken out via the yen carry trade would be gradually unwound. This would have meant that yen would need to be purchased to repay these loans. However, the extremely opaque market suggests that this has hardly happened at all. On the contrary: Over the past few months, investors have built up immense short positions. These are now approaching the historic record set in May 2025.

It is also interesting to note that there has recently been increased betting on a falling euro. It’s important to keep in mind that investors are often correct in their long and short positions. It is therefore entirely conceivable that the euro could come under greater pressure in the coming months.

When several major currencies weaken at the same time, another usually benefits. Unsurprisingly, the US dollar’s internal strength has risen to 100%. The strength of the US dollar was, in fact, one of the developments we had already identified in January as a potential surprise for the current year. However, history also shows that the US dollar was often already in the final stages of an uptrend when this strength chart reached its peak. The chart below shows that only the uptrend of 2021 untill 2022 lasted longer.

The answer to the question of which of the three currencies will take the lead in the coming months is therefore likely to depend largely on the Bank of Japan’s interest rate decision. The U.S. dollar could soon relinquish its role as the favorite—but for that to happen, the geopolitical situation would have to calm down. The long-term outlook also appears to be clouding over against the euro, while the Japanese yen is heavily oversold. A potential reversal could be correspondingly sharp, especially given the enormous short positions in the futures market and the still massive carry trades that remain open.

The market pendulum for Japanese bond yields is showing a positive trend, suggesting that higher interest rates are to be expected. This could also have a positive effect on the Japanese currency—even if, as noted at the outset, this correlation has recently failed with surprising reliability.

The Japanese stock market could also behave differently from the usual script. Normally, a weak yen is positive for export-oriented Japanese companies. However, over the past few months, the weak yen has led to rising costs for energy, which Japan must import almost entirely. The market’s focus is therefore clearly on inflation—and that is precisely likely to be the Bank of Japan’s main topic this coming Friday.

As a result, the Japanese Nikkei Index has recently corrected significantly, while pessimism has now reached extreme levels.

This, of course, is precisely where the preferred playing field of contrarians begins—those investors who feel particularly at home when the masses are moving as uniformly as possible in the opposite direction. In fact, Smart Investors Action shows that distribution has decreased significantly in recent days. There is therefore a good chance that both the Japanese currency and the stock market are poised for a revival.

If you enjoyed this issue, please click on the Like icon at the top or at the bottom of this email. This is very important in helping our Thoughts gain more followers. And don’t forget to recommend us - with the button below. Thank you!

We wish you successful investments!

Yours sincerely,

Pretiorates

Find out more about Pretiorates.com

Remember, we are not making any recommendations for investments, we are just giving you ideas for your own analysis and decisions! Do your own due dilligence!

If you like our short analysis, please recommend us to your friends!

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Pretiorates’ Thoughts – The Fine Art of Flexible Logic

In one of our recent issues of “Thoughts,” we explained that the price of Gold had come under pressure due, among other things, to the war in Iran. Every journalist assumed that Gold would rise during a war. However, higher Oil prices fueled inflation fears and, with them, concerns about higher interest rates. Furthermore, Gold fever was still in full swing at the end of February, even though the correction was already in full force. Many investors remained heavily invested in Gold. They were forced to sell, and the Gold market first had to absorb this.

The situation in Iran has temporarily calmed down, the Oil price temporarily fell back to its original level, and the most recently published consumer price index CPI came in significantly lower than expected. Did this give the Gold price the green light to set its sights on previous highs again?

No. By then, the market had come to believe that the U.S. economy might be performing better than expected. A lower Oil price could further fuel the economy—and in turn, stoke inflation. The real market yield—that is, the yield on 10-year U.S. Treasuries minus inflation—continued to rise. For the price of Gold, this meant continued headwinds rather than a surge …

Let’s paint the following scenario on the wall, even if we aren’t really convinced of it—yet:

The war with Iran escalates once again. In addition to the Strait of Hormuz, the Houthis also block the Bab al-Mandab Strait, which controls access to the Red Sea and thus to the Suez Canal. The price of Oil shoots up again. This time, however, the price of Gold also rises sharply, summarily ignoring the potential threat of inflation.

Logical? Not necessarily. But as is well known, the market has mastered the art of flexible logic. As recently as this spring, a large portion of market participants assumed that the war with Iran would soon be resolved and thus brought to an end. Every hint from U.S. President Trump that an agreement was imminent was readily interpreted as a green light for higher stock prices. We are still near the all-time high.

However, should the market come to realize that the war will last longer and become significantly more expensive, the issue of government debt is likely to make a very rapid comeback. Yields on U.S. Treasuries have already risen significantly recently… This could be bullish for the price of Gold, as investors would once again place a higher premium on safety. Furthermore, following the sharp correction in the first half of the year, many investors are now significantly underinvested in Gold.

Journalists who, as recently as this spring, were puzzled that the Gold price did not react to the outbreak of war in Iran are likely to shake their heads in bewilderment once again…

In fact, the price of Gold is on the verge of breaking out of the downtrend—which has been discussed repeatedly in recent times—sooner than expected. The corresponding chart is being closely monitored by numerous market participants. A breakout could therefore trigger a heightened self-fulfilling effect simply because of its signaling power.

Silver could also benefit from a Gold breakout. What’s particularly interesting is that the premium on the only physically backed Silver ETF available in China has now risen again to around 20%. This is a clear indication that Chinese investors are repositioning themselves.

We are not yet fully convinced by the scenario described above. A breakout in Gold and Silver would undoubtedly be a blessing for any investor who remains invested—and indeed should remain so. However, Wall Street continues to give us cause for concern. We know from experience that as soon as the bears take control of the stock market, Gold and Silver usually come under immediate, short-term but intense selling pressure. When fear sets in on Wall Street, the magic word is “liquidity.” Selling Gold and Silver is a quick and easy way to secure it. At this point, stock positions are often already in the red—and who wants to voluntarily part with an investment at a loss?

In previous posts, we’ve shown several long-term charts that point to a more significant correction and suggest reducing the allocation to stocks. As usual, we won’t know for sure whether this correction will actually happen until after the fact. If it doesn’t materialize, you’ve missed out on nothing more than potential gains. If it does, however, the losses will be significantly smaller. It increasingly appears that we are entering a phase in which one should not chase potential gains, but rather secure one’s capital as best as possible.

Recently, several savvy market participants have warned that the market is currently underestimating economic and geopolitical risks. We agree with this assessment. In addition, the latest figures from FINRA also show that credit-financed investments by U.S. investors have continued to rise sharply. So-called margin debt has now reached a volume of 1,500 billion U.S. dollars. The chart vividly illustrates just how much speculation has surged in recent months.

The scale of this is also evident when viewed relative to U.S. gross domestic product: Margin debt—which is ultimately nothing more than credit-financed speculation—could soon reach the 5% mark of U.S. GDP. We are already in uncharted territory.

Almost more important than the absolute magnitude, however, is the speed of the increase. If the growth in outstanding margin debt continues to accelerate, this suggests that investors are increasingly driven by the fear of missing out. Then greed takes over. And greed typically emerges when a market reaches a long-term peak—just as panic does at the other end of the spectrum.

The so-called “rate of change” measures this pace of growth over a rolling 15-month period. With the new margin debt data, one of these rare sell signals has now been triggered. This happens when the rate of growth in loans becomes too high.

And then there is another chart that is highly interesting. The average annual trend of the volatility index since 1991—that is, over the past 35 years—shows that volatility rises significantly between August and November. Higher volatility is typically accompanied by falling stock markets. Of course, this does not mean that the coming months will necessarily follow the same script. Yet in the first half of the year, the market adhered to it with astonishing precision. That is why we view this seasonal pattern with great respect. It isn’t necessarily logical, either. But perhaps investors are best served when not only the market but they themselves think flexibly.

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Pretiorates

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Pretiorates’ Thoughts – Not Much Gas in the Tank, Nor Gold in the Bank

Investors seem to have already gone on summer break. Wall Street is consolidating at high levels, the U.S. dollar is following suit, and precious metals continue to recover from their hangover after years of partying. Apparently, the party was a bit wilder than expected—and the morning after is lasting longer than we would have anticipated.

The Strait of Hormuz is also effectively closed again after U.S. President Trump declared the ceasefire over. Bombing has resumed, while reliable information is reaching the markets only in dribs and drabs. The oil price has nevertheless gotten the message and has risen from its interim low of $72 back to $85.

While the market stares spellbound at the oil price, natural gas—or Liquefied Natural Gas (LNG)—is almost falling by the wayside. Russia has the world’s largest gas reserves, but Europe has decided, through its sanctions, that no Russian gas should flow into EU storage facilities in the future. At the moment, however, Belgium, the Netherlands, France, and other EU countries still source about four-tenths of their gas from Russia. A significant portion of this is even forwarded to Germany. According to EU plans, this is set to end once and for all as of January 1, 2027.

Qatar, the country with the world’s third-largest gas reserves after Russia and Iran, has suspended its efforts to repair the destroyed LNG infrastructure following the renewed outbreak of war. It is highly unlikely that exports through the Strait of Hormuz will resume in the foreseeable future. Norway, for its part, can supply only about 40% of the EU’s daily LNG needs.

It is therefore hardly surprising that the German Association for Gas and Hydrogen Storage (INES) has issued a stark warning. Gas storage facilities in the EU are currently only 52% full, and in Germany, as low as 44%. This is well below the long-term average for this time of year, which stands at around 72% in the EU.

In the summer, gas storage operators typically purchase gas at lower prices. However, due to the war in Iran and the resulting high prices, they are holding back this time. The problem is this: the potential for daily gas injection into storage facilities is only about 0.2%. At this rate, storage facilities are likely to reach only about 70% capacity by the start of winter around November 1—that is, in just over 100 days. Sooner or later, purchases will have to be made. And when that happens, the bottom line is: price aside, the storage facilities must be filled.

In addition, of course, there’s the tried-and-true principle of hope: hopefully, winter won’t come too early. In the event of a cold winter, the INES Association is already forecasting a gas shortage of up to two terawatt-hours per day in February and March 2027. In that case, up to 40% of Germany’s daily natural gas needs could be missing. That wouldn’t be a small gap, but rather a full-blown hole.

Norway can’t supply everything. Russian gas is no longer wanted. LNG from Qatar could be off the table due to the Strait of Hormuz being blocked once again. Thus, the resurgent U.S. energy powerhouse will likely have to step into the breach once more. Do American LNG exporters know about Europe’s plight and are they therefore turning up the price screw a bit? You can judge that for yourself. Perhaps that’s why it might be interesting to bet on rising gas prices—for example, via an ETF.

It turns out that even though the gas price has recently lost further ground, the situation is by no means as negative as it appears at first glance. Buyers are simply waiting it out. For now.

The situation is similar for precious metals. The consolidation—or let’s call it a correction—is taking significantly longer than many had expected. In one of our recent issues, we highlighted the triangle pattern in which the gold price continues to trade. It is marked on the chart by the two red lines. Additional support is provided by the green line, which previously acted as resistance and has now become a support level. The purple Fibonacci extension with the golden ratio of 0.618 also runs at the same level, providing further support. When multiple technical levels converge at the same point, the market usually takes a closer look.

We can assume that a breakout is imminent in the coming days or weeks. Should a final washout occur before then, this would likely represent a buying opportunity. Many investors are now barely exposed to gold at all. This is evident from the number of open futures contracts on the COMEX, which has fallen to its lowest level in more than 15 years. Investors are underinvested because, according to numerous media outlets and analysts, there is currently little to support gold.

It’s true: Real market yields have risen, which is negative for the gold price. The national debt of many countries is not currently a focus, even though military operations are lasting longer and costing more as a result. U.S. national debt is therefore likely to become an issue again sooner or later. And Germany isn’t spared either: The market is already signaling that it no longer trusts the former EU powerhouse unconditionally. Market yields in Germany and its small neighbor Switzerland remained at similar levels for a very, very long time. However, the spread between the two countries has been rising steadily for four years.

Meanwhile, China continues to sell U.S. Treasuries—and has been doing so at an even faster pace in recent months.

In contrast, gold purchases continue. The figures for June have not yet been released, but in May, China imported 163 metric tons of gold—the highest amount in two years. The 12-month moving average of the import rate shows that the pace has picked up significantly again since the beginning of the year. It is therefore fair to argue that China is taking advantage of lower gold prices to buy.

However, China’s gold imports become truly impressive only when one looks not just at the tonnage, but at their value. The monthly volume of imports may not be that much higher, but due to the rise in the price of gold, their value has increased massively compared to the previous year. The fact remains: China has not simply increased the pace of its gold imports over the past three months—it has multiplied them. Why? How? To what end? You can once again draw your own conclusions.

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Pretiorates

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Pretiorates’ Thoughts – When Liquidity Leaves the Party

Investors are currently struggling through some nerve-wracking weeks. In the stock market, everyone is watching AI companies with bated breath, wondering whether the much-discussed “bubble” will burst soon or keep going for a few more rounds. Gold investors, on the other hand, are fixated on the psychologically important $4,000 mark and are asking the legitimate question of when this correction, which has been ongoing since January, will finally come to an end.

We’re therefore showing the key chart from last week’s analysis once again. While the 4,000 mark may exert a certain psychological pull, what’s truly decisive is the cluster of support levels around $3,965 and slightly below. On the positive side, this zone has been confirmed several times so far—though, of course, that doesn’t mean it’s now set in stone. At the same time, we can see the green, downward-sloping downtrend line. Should the gold price break above it, the correction will likely have reached its final chapter. It’s also interesting to note that this green line—currently at $4,280 per ounce of gold—will already reach the current level by the end of July. A major decision is therefore likely to be made before the end of this month.

Today, the new Fed Chair Harsh did have a small silver lining in store for gold bugs, but the U.S. jobs report coming out this Friday could trigger fresh selling pressure if the economic data comes in very strong.

This really leaves only one strategy: If support gives way contrary to expectations, we’re likely to see another sharp sell-off. That would be less of a doomsday scenario and more of a great opportunity to buy at even lower prices.

Hopes for a successful defense are rising, as the Balance of Power has shown an upward trend over the past few days for the first time since mid-April. This indicator does not show the trend of the asset itself, but rather the balance of power between the two camps: bulls and bears. If the indicator points upward, the bulls have the advantage. In soccer terms, they would be the team in possession of the ball—hopefully with more conviction than many of the major soccer nations at the current World Cup.

Sentiment in Western gold trading is also showing positive signs: the pessimistic mood is steadily brightening.

In China, too, many investors have been caught off guard in recent months. It is therefore all the more encouraging that the cautious mood is gradually coming to an end in Asian trading as well.

The fact that Chinese investors—who are particularly interested in physical metal—were recently caught off guard is also reflected in measurements of silver’s physical availability. The shortage has continued to ease recently, likely because some investors had to sell. This may be a disappointment for those hoping for another parabolic price rally. However, a renewed price rise is by no means off the table.

A look at the overall market. As mentioned several times in previous posts: The most important driver of a rising stock market is liquidity. And this is determined not least by the central banks, particularly the Fed. It is therefore hardly surprising that there is a high correlation between the percentage change over the past twelve months in the M2 money supply and the S&P 500 Index. But we must note: While the U.S. stock index still shows an increased percentage change over a twelve-month period, that of M2 has long been falling—and not exactly at a homeopathic pace. So the stock market is still dancing, even though it’s increasingly running out of steam…

It explains why the stock market has shown such fear of higher interest rates in recent months: Higher interest rates curb lending, thereby slowing the generally steady growth of M2. And when liquidity flows less freely, the hangover after the party sets in much faster.

In previous posts, we’ve also toyed with the theory that the performance of cryptocurrencies is heavily dependent on liquidity. The more liquidity is available, the more money investors have at their disposal for investments outside of traditional assets. Accordingly, it comes as little surprise that the crypto markets have recently performed rather weakly. When the liquidity tap is turned off, the speculative players are usually the first to tone down their exuberance. The fact is: the balance of power shows that the bears are still in control of Bitcoin, and the correction is likely not over yet…

Bottom Line: Precious metals are facing their ultimate test over the next few weeks. However, sell-offs should present buying opportunities. The stock markets are also likely to face their own tests—only they’ll be entering the fray with significantly less breathing room…

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Pretiorates’ Thoughts – Gold Catches Its Breath, Stocks Hold Their Breath

In last week’s thoughts, we pointed out that a long-term but very reliable indicator had generated a sell signal. Margin debt—that is, stock investments made on credit—has grown by more than 60% over the past twelve months. A classic sign of greed—that magic word that, at the end of a major uptrend, almost always eventually takes control away from caution. And remember: Investors who use borrowed money to invest don’t have much staying power.

Even though last week’s commentary explicitly mentioned a long-term sell signal, sentiment in the financial markets has since taken a new turn—with immediate and, in some cases, dramatic effects on precious metals, stock markets, and market interest rates. The trigger: the new Fed Chair.

When war broke out in Iran, the general narrative was: “Higher oil prices = higher inflation = higher interest rates = bad for precious metals.”

This market formula has thus shifted to “lower oil prices fuel demand in an economy that’s already running hot—and that drives inflation even higher.” And, as is well known, inflation is combated with higher interest rates, which led to a painful sell-off in precious metals.

This week, we want to focus on the strength of the U.S. economy. But first, let’s address the most pressing of all questions: Have precious metals hit bottom?

With a little help from traditional technical analysis and Fibonacci numbers, there’s a very good chance that the pain for gold bugs should now slowly begin to subside. Today, the gold market touched—and confirmed—a very important support level at USD 3,960: the yellow line, which has already proven itself multiple times as both resistance and support, as well as the purple 0.618 extension line. 0.618 is a well-known mathematical number from the Fibonacci sequence, aptly named the “Golden Ratio.” Fibonacci numbers are particularly effective when emotions are running high in the markets.

The fact that the gold price has now overshot on the downside is also evident from its correlation with percentage performance over the past six months—just as it overshot on the upside in early year.

Pessimism in the gold market has recently intensified even in Shanghai, despite the fact that the Chinese central bank, the PBoC, imported 163 metric tons last month—the highest volume in two years.

During the first five months, the central bank’s imports rose by no less than 76% compared to the previous year. This puts us back in a situation similar to two years ago: physical gold is flowing from the West to the East—even as prices fall.

What is surprising, however, is the shift in sentiment in the West: after being deeply pessimistic until recently, sentiment now appears to be brightening. An important prerequisite for market prices to rise again…

Another factor that should act like aspirin: EquityClock.com tracks price movements over several years—in this case, over 20 years. According to this seasonal analysis, gold tends to rise on average from July through August.

In the short term, however, the gold price is likely to remain constrained by the interest rate environment. Since Fed Chair Harsh’s first appearance last week, the market has been anticipating at least one interest rate hike this year, possibly even two.

A strong U.S. economy and, consequently, rising interest rates? That doesn’t align at all with the University of Michigan’s consumer sentiment index, which recently hit a new low.

Yet the vast majority of recent U.S. economic data has come in stronger than expected. Of course, much of the credit for this goes above all to AI companies, which invest several hundred billion annually. This leaves fewer jobs for private consumers, which explains the subdued sentiment.

But it’s not just the AI companies: The Cass Corp Freight Index has also risen sharply in recent months. This index indicates whether more or fewer goods are being transported in North America. When it rises, it suggests that corporate business is doing well.

It’s therefore no surprise that investors have recently become more cautious. Hedge funds have now neutralized their above-average equity investments.

Short positions in the very large Nasdaq-100 ETF QQQ have been massively increased since the start of the last uptrend at the end of March…

And market breadth within the S&P 500 has eroded significantly in recent days and weeks.

Bottom Line: The start of a Wall Street correction might be coming sooner than expected after all. Whether interest rates will actually rise remains to be seen. Rising interest rates would also bring the issue of government debt back into the spotlight—which, in principle, should also be a positive for gold.

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Pretiorates

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Pretiorates’ Thoughts – The Calm Before the Margin Call?

On Friday, the framework agreement is set to be signed in Switzerland by the U.S. and Iran. This will mark the start of a 60-day period during which technical negotiations are intended to lead to a lasting solution. Not all details of the agreement are known yet, but what has already been leaked is likely to at least significantly undermine the hoped-for belief in a lasting peace. Israel does not accept the agreement, which means that the problem in Lebanon is far from resolved. For Iran, however, this point is of great significance. It therefore remains to be seen whether the Strait of Hormuz will indeed be fully and unrestrictedly reopened. The risk that the final chapter of this conflict has not yet been written thus seems quite real. The stock market’s reaction to the progress of the peace talks was correspondingly cautious—rather subdued.

The “Smart Investors Action” indicator uses the light blue area to show whether large investors—who typically act patiently and rather inconspicuously in the background—are accumulating or selling shares. These are always long-term investments, as is typical for this type of investor. It is striking that the sell-off at the beginning of the month was excessively strong, triggering a red area—a so-called “exaggeration.” Such exaggerations are almost always met with equally strong counter-movements. During the rally of the past few days, however, it is noticeable that the Smart Investors Action no longer indicated accumulation. The large investors therefore seem to have used the rising stock prices to take profits rather than to buy aggressively.

The same picture emerges in professional trading, as depicted by the After Open Action indicator. Here, too, it appears that the rising stock prices of the past few days have been used primarily to sell off investments. In other words: The pros haven’t necessarily used the bullish market to cozy up to it, but rather to exit through the side door.

For the first time since late March—when we turned bullish on the U.S. stock market again due to the rising sentiment indicator, which compares optimism and pessimism—that indicator has now fallen back into the pessimistic zone. From this point on, the overall market therefore needs fundamentally positive news if further gains are to be achieved. A positive mood alone is no longer enough; the market wants to see solid arguments again.

In the short term, the Market Pendulum still seems to indicate that the positive underlying tone is likely to persist somewhat. It can therefore be assumed that the index will not suddenly lose momentum, but will rather consolidate at a higher level, possibly accompanied by increased volatility. So the music is still playing, but the volume control seems a bit more erratic than it has been recently.

What is striking about the European market is that, unlike the U.S. market, it did not exhibit any signs of overreaction during the sell-off at the beginning of the month, but is now showing such signs during the recovery (red area). This is a clear indication that there has been cautious distribution in recent weeks, while the recent rise in stock prices has actually been used quite aggressively for selling.

The IFO Economic Expectations Index shows that the outlook for Germany isn’t exactly rosy. This leading indicator for German GDP suggests that Europe’s most important economic zone could soon fall into a recession. That sounds less like a spring awakening and more like a weather report with a storm warning.

So the thick, dark clouds on the horizon seem to be drawing nearer. The new margin debt data for May has just been released and provides an important clue in this regard. As a reminder, these are investments acquired through borrowing. The more these loans increase, the more US investors are speculating. It therefore stands to reason that they tend to rise particularly sharply near long-term highs. At the same time, this makes the market more nervous because investors who finance their investments with debt do not have particularly deep pockets.

In fact, margin debt rose massively again in May, and at first glance, the figure is quite alarming: for the first time, the amount of credit for investments rose above 1.4 trillion U.S. dollars.

However, simply looking at the raw figure for credit extended for investments doesn’t really make much sense. This growth should also be compared to the growth of U.S. GDP. Yet even from this perspective, the trend appears quite dramatic. In recent months, this key metric has risen to a new all-time high even relative to GDP.

Relative to the growth in the market capitalization of all U.S. stocks, however, we are still at a lower level than during the past decade.

What is truly interesting, however, is the speed at which margin debt has increased. Over the past 30 years, the percentage change over the last 15 months has consistently proven to be a reliable indicator. A long-term sell signal has not yet been generated.

Another indicator is the percentage growth over twelve months. Whenever margin debt has increased by more than 60 percent within a year, the market has plummeted quite sharply in the following months. The 60 percent growth threshold is marked by the red line, and we must note: Investors are apparently so confident that they have expanded their investments using a great deal of credit. This is a serious, long-term sell signal for the overall market.

The health of the stock market is also reflected in the breadth of stocks showing positive performance. Here, too, a long-term sell signal appears: Although the S&P 500 Index recently reached new record highs, many stocks within the index have fallen to new 52-week lows. So the index is wearing a suit and tie, while beneath the surface, a few shirt buttons are already missing.

Bottom-Up: It’s worth noting that almost all of the charts discussed in today’s Thoughts are long-term in nature. So if the market continues to rise in the coming weeks, it might be time to lock in some profits…

If you enjoyed this issue, please click on the Like icon at the top or at the bottom of this email. This is very important in helping our Thoughts gain more followers. And don’t forget to recommend us - with the button below. Thank you!

We wish you successful investments!

Yours sincerely,

Pretiorates

Find out more about Pretiorates.com

Remember, we are not making any recommendations for investments, we are just giving you ideas for your own analysis and decisions! Do your own due dilligence!

If you like our short analysis, please recommend us to your friends!

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Dear readers,

Before we get to the new thoughts, check out the AI video from our last edition:

Pretiorates’ Thoughts — When Everyone Leaves the Gold Party, Contrarians Check In

Please watch and give it a like! Or even better: subscribe to our AI channel!

Pretiorates’ Thoughts – Rock, Paper, and Scissors

We at Pretiorates are always delighted to share our thoughts on the markets with you—thoughts that we hope will serve as a useful compass for your investment decisions. But of course, we too rely on input from which we distill our assessments. Among the sources we find particularly valuable is cycle analyst Eric Hadik of InsiideTrackTrading.com. He has described the behavior of the U.S. dollar, gold, and Bitcoin in a simple and intuitive way: They function like the game of rock, paper, and scissors. Each can beat the other—and one is always on top.

We have attempted to translate this theory into a trend model using our own strength indicators. It quickly became apparent: one of these assets always takes on the role of favorite—but can rarely defend this position over the long term. As soon as one of the three candidates reaches full strength of 100%, the leading role is usually passed on again. And the dynamic seems to work the same way on the other end of the spectrum: absolute weakness at 0% is only evident for a short time. What’s important for trend analysis, however, is that whoever is at the very bottom usually doesn’t stay there long.

Given current events, it’s hardly surprising that the U.S. dollar is currently gaining strength and is likely to remain in the lead for the foreseeable future.

Bitcoin, on the other hand, had temporarily taken the lead back in April, but May turned out to be anything but a merry month. The strength index suggests that little will change in this regard for the time being.

It is equally unsurprising that the third member of the trio, gold, had to endure a dismal spring. But—and here comes the big “but”—the strength index has nearly reached its absolute low. If this dynamic continues, there is a high probability that the precious metal will next take the lead. Gold could thus rise again from substitute to captain.

This assessment may be based on the principle of “hope for the gold bugs.” But let’s try to confirm it based on current events: If the U.S. dollar were to actually cede its leading role to gold and enter a consolidation phase in the coming weeks, gold would very likely benefit from this. The trigger could be of a geopolitical nature. Perhaps the parties involved in the Iran conflict will come to their senses after all. This would also ease inflationary pressure, and US Treasury yields could fall. Of course, this, too, is to some extent based on the principle of “hope.” Yet the reliable “Balance of Power” indicator from the US bond market has just generated a sell signal for US Treasury yields…

The Bitcoin cycle has also been working very well recently and suggests that the cryptocurrency—barring technical rebounds—can likely not expect a sustained upward trend until the fall.

Gold bugs can therefore hope that the cycles will continue to function in the coming months as they have in recent years.

Another question is currently pressing: Following the minor tremors of the past few days, should equity investors also expect a correction?

If we analyze the current asset strategy of hedge funds, they continue to show their bullish side. Long investments clearly outweigh short positions. Hedge funds are thus betting on further rising stock prices.

The smart investors—that is, those who tend to position themselves discreetly in the background with large investments—are not accumulating further. However, the indicator’s red area suggests that the market has recently overreacted on the selling side. This would make a rising index quite likely.

Of course, optimism has waned along with the recent decline in stock indices. Yet it remains on the positive side. Accordingly, Wall Street is expected to remain resilient.

But let’s not kid ourselves: The war with Iran has led to an energy shock. While this is currently still relatively mild, the disruption to oil exports through the Strait of Hormuz could only be mitigated because many nations—particularly China and the U.S.—are drawing on their oil reserves, with China importing significantly less and the U.S. simultaneously exporting significantly more. But these reserves are not bottomless. In the second half of the year, we will be heading from a supply deficit toward a shortage unless the Strait of Hormuz reopens soon. Then consumers’ already strained wallets are likely to come under even greater pressure. And we know from previous observations: Consumers’ real income correlates strongly with the stock market. If people cannot save, they can also invest significantly less. Investors would therefore be well advised to take profits as markets rise again.

We wish you successful investments!

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Pretiorates’ Thoughts — Bond Relief, Bullish Belief

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Pretiorates’ Thoughts – When Everyone Leaves the Gold Party, Contrarians Check In

The real market return—typically calculated as the yield on 10-year U.S. Treasuries minus the inflation rate (i.e., the CPI)—continues to show a very high correlation with the price of gold, as measured by the percentage change over the past six months. This confirms our view: interest rates play a very significant role in the gold market. And not just since the outbreak of the Iran war.

In fact, it has become clearer again since the start of the Iran war: higher oil prices fuel inflation fears, which in turn drive interest rates higher. A chain reaction that doesn’t exactly bode well for precious metals.

The stock market has so far weathered these fears and higher market yields remarkably well—the S&P 500 Index has just reached a new all-time high. Behind this, however, lies a healthy dose of confidence that the problem in the Strait of Hormuz will soon be resolved. Then the many tankers blocked in the Persian Gulf could finally resume supplying the global market. The price of oil would fall again, and with it, inflation fears and interest rates.

That sounds like a very nice idea. But there are other factors influencing the development of U.S. interest rates. The U.S. economy itself, for example. When the economic engine is humming, interest rates usually rise as well.

In the high-tech sector, business continues to thrive—thanks to AI. The virtually immeasurable investments in the high-tech sector now account for a significant portion of U.S. GDP. Other sectors are also benefiting from this: utilities, mining companies, and other suppliers to the digital gold rush. With fossil fuel exports from the Middle East blocked, the U.S. has also emerged as an energy powerhouse, much to the delight of the major U.S. energy companies.

In fact, the latest development in the Citi U.S. Economic Surprise Index shows that recent economic data has almost without exception come in better than expected. This pushes market yields higher and doesn’t bode well for precious metals.

But it wasn’t just the Citi Surprise Index that delivered a strong surprise recently. The ISM Manufacturing Index, released on Monday, has also made a significant jump above the critical 50-point mark in recent months and now stands at 54 points. When this index is above 50, it signals growth in the U.S. economy. Below 50, the outlook is less favorable.

An end to the Iran conflict does not necessarily have to lead to falling market yields. With the strong U.S. economy, there is a factor that should not be underestimated and that could prevent the Fed from cutting interest rates. A strong U.S. economy also usually leads to a stronger U.S. dollar.

For gold and silver prices, this is, of course, anything but supportive. The consolidation has now lasted over four months and is testing the patience of gold and silver investors. In fact, the situation in the silver market has long since fully normalized: as recently as the turn of the year, there was far too little physical silver in the market. Currently, this no longer appears to be an issue.

Even when investors lend out their physical holdings, they no longer earn much from it. After the lease rate briefly exceeded 30% at the end of the year, it has since returned to its usual long-term level of just under one percent. So the former silver fever has cooled back down to a lukewarm room temperature.

Even in China, the picture is similar: Chinese investors have only one silver ETF at their disposal. After a premium of over 100% was paid at times for the silver held in this ETF—and the ETF manager himself had to warn against further investments—this premium has since settled back down to well below 10%.

It thus appears that the bullish days for gold and silver are over. In fact, many market participants have already turned away from the two precious metals. Open interest shows how many futures contracts are open across all maturities. For gold, this figure has recently fallen to 455,000 contracts. The increased margin requirements in recent months are likely partly responsible for the lower number. We have now reached the lowest level since 2008.

The same picture emerges for silver futures: Open interest has now fallen to just under 120,000 contracts—the lowest level since 2009. It certainly seems as though investors have given up on this market. Lights out, doors closed; the silver bugs appear to have lost their optimism.

But whenever interest in an asset class is particularly low, contrarian investors’ interest rises. In fact, gold’s Power Index has also fallen to its lowest level since October 2023. October 2023—that rings a bell, doesn’t it? Oh yes, that’s right: that’s when the gold price began to rise at a significantly faster pace. So don’t give up too soon…

We wish you successful investments!

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Pretiorates’ Thoughts — My name is Bond, Bear Bond

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Pretiorates’ Thoughts – Bond Relief, Bullish Belief

The focus remains on the Middle East, even as the situation becomes increasingly unclear. Reports of progress from the U.S. government and denials from Iran are now coming in at ever-shorter intervals. However, as expected, the price of oil appears to be stabilizing at a lower, more comfortable level, and with it, the bond markets. The recent rise in interest rates was ultimately responsible for some headaches on Wall Street. In fact, as described in last week’s Thoughts, the Balance of Power indicator shows a significant loss of momentum. This indicator measures the balance of power between bulls and bears, and the current trend suggests that the decline in market yields is unlikely to be a flash in the pan.

A stabilization or even a renewed decline in market yields would be pure fuel for the Wall Street bulls. In fact, the Smart Investors Action chart shows that accumulation continues in the background: the light blue area remains on the positive side.

A key prerequisite for Wall Street to venture the next leap to a higher level is positive sentiment. While the corresponding indicator shows that optimism has waned somewhat, it remains very strong. As a result, the market is likely to generously ignore negative news for the time being—while positive developments are met with standing ovations.

Unsurprisingly, the same indicator also points to a similar scenario for Nasdaq stocks. This comes as no surprise, as it is primarily high-tech stocks in the semiconductor, AI, and quantum sectors that are currently leading the charge.

European markets, on the other hand, which unfortunately play a less leading role in these sectors, are being pulled upward by Wall Street, yet the environment remains significantly less robust. There is hardly any sign of strong accumulation by smart investors. So if Wall Street were to catch a temporary cough, Europe would likely soon find itself in bed with a full-blown flu.

It is also striking that sentiment in Europe does not radiate any real optimism. It gives the impression that the indicator is lagging behind market developments rather than running ahead of them. Sentiment improves only after price gains—or darkens again when these fail to materialize.

Many market observers point to poor consumer sentiment in the U.S., yet one of the most important leading indicators for the U.S. economy paints a significantly more positive picture: The Conference Board U.S. Leading Indicator is composed of ten sub-indicators, and its upward trend points to a strengthening economy.

Our own SESI Warning Index, which measures the strength of particularly cyclical stocks, also provides confirmation. If sentiment in the U.S. economy were truly that poor, these cyclical stocks would hardly be performing so strongly.

Another of our key indicators, which prompted us to switch to the bull camp at the end of March, also remains positive: the ratio between the S&P 500 Index and defensive utility stocks. Whenever Wall Street outperforms the sector where investors tend to seek refuge during turbulent times, “risk-on” is the order of the day. This indicator is particularly interesting when it reaches an extreme value, as it did in March. Although the ratio has since risen significantly and is approaching an upper extreme, it does not yet appear to be acting as a brake.

Of course, there are also warning signs, such as the Happy Friday indicator: If Wall Street underperforms on a Friday, the negative sentiment can take hold over the weekend—and often leads to a rather pessimistic following week. Conversely, the new week often starts with a lot of momentum after a strong Friday. If such developments become frequent, the Happy Friday indicator sounds the alarm. After we received the green light for the bulls several times in April, a red dot has now appeared for the first time. However, one swallow does not make a summer—a single red dot is not yet a game-changer.

Bottom Line: Those who missed the rally are now warning particularly loudly about the next correction. We’re letting our investments run their course, as the chance remains intact that Wall Street will soon make its next move. That doesn’t mean we’re ignoring negative developments. The clouds are getting darker, but the storm is likely still a ways off.

Next week, we’ll take another look at precious metals. Things finally seem to be picking up again, especially with silver.

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We wish you successful investments!

If you enjoyed this issue, please click on the Like icon at the top or at the bottom of this email. This is very important in helping our Thoughts gain more followers. Thank you!

Yours sincerely,

Pretiorates

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Pretiorates’ Thoughts — Wall Street Bulls Don’t Blink

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Pretiorates’ Thoughts – My name is Bond, Bear Bond

Another week has passed, yet the Strait of Hormuz remains closed. As mentioned in previous Thoughts, Iranian storage facilities are getting full. The country is therefore increasingly forced to rely on old tankers as floating storage for the oil that continues to be produced but cannot be exported.

After all, you can’t simply turn off an oil field like a faucet. If production is abruptly halted, the pressure could collapse. Water or gas could seep into the geological formation, making a later resumption of production very expensive—if it were even possible at all. Iran is therefore trying to cut back production as much as possible while still maintaining it, and at the same time finding additional storage options.

The Financial Times has also covered the topic and reports that, according to the commodities research firm Kpler, 42 million barrels of crude oil are now being stored on Iranian tankers. According to Al Jazeera, the country has storage capacity in the form of floating tanks or ships at anchor totaling around 127 million barrels.

This makes it clear: Iran is indeed under pressure due to the U.S. blockade—though significantly less so than previously assumed in many quarters. The financial markets will likely have to scale back their hopes for a quick solution somewhat. Meanwhile, global oil reserves continue to deplete. Should these reserves be depleted before they can be replenished via a reopened Strait of Hormuz, the oil shock that many experts worldwide are warning about is likely to become a reality. Depending on the country, this could be expected in late summer or fall. However, the financial markets still assume that it won’t come to that. On the contrary: Reports are coming in from Pakistan right now that the Iranian government might be preparing a new offer. Long live hope—as we all know, it still wears water wings even when the tanker is already listing.

Last week, the effects of high energy prices were reflected in the inflation figures—and we discussed them accordingly. The Consumer Price Index rose to three percent, while the Producer Price Index more than doubled to 6.4%. Many market participants now fear once again that the high PPI will feed through to the CPI and cause a sharp spike in the consumer price index within a few months. We refuted this last week—and we’ll reiterate it right away: The PPI is often significantly more volatile than the CPI, but the two move in tandem; there is no lasting time lag observed in the CPI.

Other market participants also see a flaw in the fact that discussions of both inflation metrics usually focus on the core rate, while the development of energy and food prices is excluded. At first glance, this does indeed seem somewhat strange, since consumers are, after all, dependent on energy and food. For macro analysts and market strategists, however, it is crucial to know whether an inflation trend has arisen from the economy itself—and is thus more long-term in nature—or whether it stems from a short-term, usually political, and therefore temporary shock in the food and energy sectors.

The core rate—i.e., excluding the volatile components of energy and food—provides better guidance in this regard. The current inflation fears have, in fact, arisen almost exclusively from higher energy prices. Should the Strait of Hormuz open in the coming days, a global flood of oil is likely to follow. The many tankers could finally head toward their destination ports, and the UAE, which has withdrawn from OPEC, could increase its production by over 50%. The oil price could potentially plummet from the current $100 to $60, resulting in a 40% decline in the inflation calculation over roughly twelve months. However, the Fed is unlikely to base its interest rate policy on these volatile components and therefore prefers to focus on the core components. The seasoned market strategist does the same.

In our outlook for 2026, we did anticipate increased volatility in bonds, but not primarily due to oil-price-driven inflation fears. Market yields on U.S. Treasuries have risen more sharply in recent days, and the fixed-income market is now pricing in a further increase of 3/8 percentage points by summer 2027.

Citi’s US Economic Surprise Index indicates whether recent economic data has come in above or below expectations. Not entirely surprisingly, there is therefore a certain correlation between this indicator and the trend in market yields. In fact, it is becoming apparent that the US economy has recently performed better than expected. This provides some confirmation that market yields have not risen solely because of the oil price.

However, we are also seeing signs that the rise in US market yields could soon lose momentum. The Balance of Power indicator, which measures the strength of bulls and bears, has already reached a very high level.

A second, short-term indicator—the Market Pendulum—provides a similar signal. The nervousness may persist for a few more days, but should then also subside—bringing lower market yields once again.

The rise in market yields over the past few days has also led to some calming on Wall Street. Higher market yields are a negative for growth, which has created a strong headwind for tech stocks, which had recently led the rally. This has caused the bull market to stall somewhat. However, “smart investors” continue to accumulate, meaning Wall Street is likely to remain dominated by the bulls. Today’s upcoming Nvidia earnings could support this scenario—or, if disappointing, cause only a brief stumble.

The rise in market yields has also had a negative impact on precious metals. But let’s remember: if inflation were to rise faster than interest rates, the resulting negative real market yield would be a bullish factor for precious metals. Yet hardly anyone seems to be anticipating that. Precious metals have fallen out of investors’ focus. This lack of interest is evident, among other things, in the number of open futures positions. Open interest in Comex gold futures has recently fallen to its lowest level in over a decade.

And the same picture is evident in silver futures. For contrarian investors who like to invest countercyclically against prevailing market sentiment, this is a particularly interesting indicator. However, this alone is not yet a buy signal. The bearish bond market is likely to generate too much noise at the moment. But let’s keep this point in mind.

We wish you successful investments!

If you enjoyed this issue, please click on the Like icon at the top or at the bottom of this email. This is very important in helping our Thoughts gain more followers. Thank you!

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Pretiorates

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Pretiorates’ Thoughts — The Strait, the FED, and the Silver Thread

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Pretiorates’ Thoughts – Wall Street Bulls Don’t Blink

The S&P 500 Index is trading at an all-time high and approaching the next major milestone: 7,500 points. At the end of March, when the same index was below 6,500 points, there were few optimists who had joined the ranks of the Wall Street bulls. Pretiorates was one of them, and that’s where we remain. Even if politicians continue to give the impression that they’re living on another planet.

The closure of the Strait of Hormuz benefits U.S. energy companies above all. Although parts of their infrastructure in war-torn regions were damaged or destroyed, Q1 results clearly showed that lower production was more than adequately offset by higher market prices. The U.S. energy powerhouse is likely to be largely supplied with oil, as are most African and the big Asian countries, which can benefit from domestic production or Russian supplies. The situation is different in Europe and several Western-oriented Asian countries: the actual oil shock is likely to become apparent there only once inventories eventually fall to lower levels.

The high-tech industry in the U.S. has been barely affected by the war. Investments in new data centers are enormous—several hundred billion dollars, as we discussed in an earlier issue. Anyone who speaks of an AI bubble is essentially implying that the big IT giants don’t know what they’re doing. Our view is rather this: Perhaps many others simply haven’t yet understood what’s coming our way. IT companies know their business better than anyone else. And one thing is obvious: The industry is booming.

Another US sector that will also benefit from this is utilities. In just a few years, data centers will generate an immense demand for electricity. The intriguing question remains: Where is all that power supposed to come from?

Back to the beginning of this article: Wall Street is in record-breaking spirits. And when the champagne corks are popping on Wall Street, profits usually flow in the financial scene as well. It’s clear that the largest US sectors are actually doing brilliantly; it’s just that sentiment is (unfortunately) heavily clouded by geopolitical developments.

That is why the Smart Investors Action continues to indicate that ‘smart investors’ are still accumulating. Even though the red area and yellow dots show initial signs that the market might be taking a temporary breather.

While sentiment on Wall Street has calmed down somewhat recently, the sentiment indicator continues to point to pronounced optimism. Negative surprises can therefore still be absorbed quite well.

Perhaps a word of caution is warranted by the fact that the appetite for more aggressive financial assets such as stocks and high-yield bonds has risen sharply at the same time. A pronounced ‘risk-on’ sentiment is evident in the record-high correlation between these two risk assets. This is not a sell signal, but it shows that Wall Street bulls have the situation under control as long as this correlation does not suddenly begin to correct.

The sharp rise in energy prices, coupled with strong sectors—this smells quite distinctly of rising inflation. In fact, both the Consumer Price Index (CPI) and the Producer Price Index(PPI), released this week, came in significantly higher than expected. However, this development is not really surprising: Given the high oil price and the sharp rise in the ISM Services PMI Report over the past few months—which has repeatedly proven to be a good leading indicator of inflation trends—higher inflation was to be expected.

The Producer Price Index, in particular, came in significantly higher than expected. But we’d like to remind you of a previous edition of our Thoughts: It’s not the case that a significantly higher PPI automatically affects the CPI sooner or later. On the contrary: The two inflation indices correlate very strongly with a three-month time lag.

This chart shows the high correlation between the oil price and inflation. Given the high oil price, one might expect inflation to skyrocket as well. That is certainly possible. But here we’re playing the ‘this time it’s different’ card. The longer the Strait of Hormuz remains closed, the more severe the oil shock is likely to be. Not necessarily in terms of oil prices themselves, since there is generally enough oil available. Oil products, on the other hand, could see a price explosion. Refining costs and processing costs are likely to skyrocket. However, we still assume that the Strait of Hormuz will reopen sooner or later. Then there is likely to be a glut of oil. That is why we are ignoring this chart—for now. We also recall our previous Thoughts: Swap rates have not (yet?) reacted to inflation fears either.

Another consequence of higher inflation would be higher market yields, i.e., higher interest rates. The new Fed Chair, Kevin Warsh, is on the verge of being confirmed by the U.S. Senate and taking office in a few days. The question is whether he will opt to combat inflation—or support the economy with lower interest rates.

The market’s reaction to his first official act is likely to be strong: The 30-year U.S. Treasury yield is on the verge of breaking through the 5 percent barrier—or facing a sharper correction.

A small majority in the market currently expects that an interest rate hike could occur.

Which brings us to U.S. consumers, as they would be the ones to bear the brunt of inflation. But here, too, it’s important to set the record straight on an age-old rumor: Yes, U.S. household debt has continued to rise in recent years. Since 2003, it has climbed from around $7 trillion to over $18 trillion today.

But what is often swept under the rug is this: disposable income has risen even more sharply. The ratio of these two figures stood at over 115 percent during the financial crisis nearly twenty years ago—meaning U.S. household debt exceeded disposable income. Since then, however, the situation has improved significantly. The ratio stands at just above 80 percent today. In other words: The U.S. consumer is no longer quite as weak as his reputation suggests—at least on average. Wolfstreet.com has written a great article on this topic, which we recommend to interested readers.

So we see: It’s not just high energy prices due to the war with Iran that are fueling inflation concerns. Higher interest rates, should they come, are something U.S. consumers can now handle much better than they could during the financial crisis. The markets are therefore likely to be waiting with bated breath for the new Fed chair’s first words. What will he emphasize?

We wish you successful investments!

If you enjoyed this issue, please click on the Like icon at the top or at the bottom of this email. This is very important in helping our Thoughts gain more followers. Thank you!

Yours sincerely,

Pretiorates

Find out more about Pretiorates.com

These thoughts will be available as an AI video on Youtube.com within 48 hours: https://www.youtube.com/@Pretiorates

And don’t forget to recommend us - with the button below.

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Dear readers,

Before we get to the new thoughts, check out the AI video from our last edition:

Pretiorates’ Thoughts — Crude Truths and ‘Strait’ Faces

Please watch and give it a like! Or even better: subscribe to our AI channel!

Pretiorates’ Thoughts – The Strait, the Fed, and the Silver Thread

Unfortunately, little has changed in the Strait of Hormuz so far. It remains closed—and with it, a significant portion of the oil and gas flows on which many countries in Asia and Europe depend remains blocked. Iran is unable to export due to the U.S. blockade, and reports are mounting that there is now barely any storage capacity left to temporarily store the oil being produced. For Tehran, this means a daily loss of revenue of around $470 million. The U.S. government appears to be banking on the Iranian regime running out of financial steam within 15 days at the latest. China would likely be the only obvious buyer—but Beijing, of all places, has no urgent need to step in. Its storage facilities are well-stocked. Nervousness in the rest of Asia—and in Europe as well—is likely to continue rising.

The U.S., on the other hand, is significantly less affected by the energy crisis. It has its own energy sources, and Wall Street is currently focusing its attention where the action is: high tech. Semiconductors, AI, and quantum computing on one side, and the Q1 results of the Mag-7 companies on the other. Microsoft, Alphabet, Meta, Amazon, and Apple will report their first-quarter results later this week.

Optimism on Wall Street has reached exceptionally high levels since the low at the end of March. Major corrections are not the usual scenario given such a positive mood, but the coming trading days could well turn into a rollercoaster ride due to corporate earnings. A new development in the Iran conflict would, of course, also have the potential to move the markets. Thanks to the currently robust sentiment, a negative turn is likely to be better absorbed; a positive development, on the other hand, could catapult the indices directly to the next level.

In the case of precious metals, however, there is still no clear trend. Investors remain concerned that high oil prices could trigger new inflation and thus force higher interest rates. In fact, the six-month performance of the gold price has once again converged with the market yield on U.S. Treasuries. This confirms that gold is fundamentally fairly valued at current levels—and that potential upside scenarios are no longer really priced in at this time.

One of these upside scenarios, as mentioned last week, leads us to the swap market: If higher oil prices were indeed to sustainably fuel inflation and thus lead to higher interest rates, this would also have to be reflected in inflation expectations in the swap market. But it isn’t. Looking five years ahead, there is no significant movement there that points to a higher inflation risk. The clear message from this side is: fears of higher interest rates in the gold market are exaggerated. We’ll know more tomorrow: The U.S. Federal Reserve will certainly comment on this—and that won’t leave the gold market unaffected.

Currently, the market remains divided: on the one hand, the physical market in the East, namely China. There, it appears that Chinese investors have recently been acting rather cautiously. On the positive side, however, the slight dip of the past few days has created an «exaggeration» on the distribution side, as indicated by the red area. This suggests the possibility that demand in Shanghai will pick up again in the near future.

In the Western paper market, on the other hand, there has recently been strong accumulation; the blue area is clearly on the positive side. However, this demand is not evident in the number of outstanding gold ETFs, where private investors are particularly active. We can therefore assume that professional trading is at work here. This lends fresh credence to rumors that the major bullion banks active in gold trading are building up their long positions.

The development in the silver market is also interesting, despite the recent lackluster consolidation. While this has not yet been fully reflected in price movements, increased accumulation by «smart investors» has also been evident here in recent weeks.

Statistics on Chinese silver imports recently caused quite a stir. In March, no less than 836 tons of silver were imported. This corresponds to total global annual production and is no less than 173% above the 10-year average, which stands at 306 tons.

However, the trend is less bullish than it appears at first glance. Effective April 1, the Chinese government has restored the preferential export tax rate for solar manufacturers to its usual level. It therefore stands to reason that solar manufacturers brought forward their silver purchases to still benefit from the lower export taxes. Accordingly, it can be assumed that China’s silver imports will fall back to a more normal level in April.

The high demand from China has also been evident since the end of the year in the spread between the silver price in Shanghai and that in the West, which temporarily rose to over 20% at the start of the year. In April, however, since the original higher export tax rate has been reinstated, the spread remained well above 10%. This can certainly be viewed as a positive signal.

Increased demand from private investors was also frequently cited as a contributing factor. However, this demand is not really evident in the premium of the only silver ETF available in China: the premium has remained at a similar level over the past few months.

While fears of higher interest rates are likely to continue to somewhat dampen precious metals, a door is opening for silver that actually seemed to have closed again: The war in Iran is not only driving electrification but also boosting demand for non-fossil-fuel-powered vehicles. Demand for EVs literally exploded in several countries in March.

Therefore, while the bulls in the gold and silver markets may not exactly feel like they’re in a golden age right now, the market could soon rediscover this sector with fresh eyes.

We wish you successful investments!

If you enjoyed this issue, please click on the Like icon at the top or at the bottom of this email. This is very important in helping our Thoughts gain more followers. Thank you!

Yours sincerely,

Pretiorates

Find out more about Pretiorates.com

These thoughts will be available as an AI video on Youtube.com within 48 hours: https://www.youtube.com/@Pretiorates

And don’t forget to recommend us - with the button below.

Remember, we are not making any recommendations for investments, we are just giving you ideas for your own analysis and decisions! Do your own due dilligence!

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Thank you for being a part of the Pretiorates community. Stay tuned for more updates, analyses, and deep dives into the realms of finance and economics.

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Dear readers,

Before we get to the new thoughts, check out the AI video from our last edition:

Pretiorates’ Thoughts — Climbing While the World Wobbles

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Pretiorates’ Thoughts – Crude Truths and ‘Strait’ Faces

In the Strait of Hormuz, nothing is off the table. The world has been informed that the U.S. military has blocked the strait. At the same time, we read that the Iranian Revolutionary Guards have blocked it. It is currently difficult to clearly distinguish who has a monopoly on the truth and what belongs more in the realm of propaganda.

Our baseline scenario remains unchanged: the war with Iran is likely to persist for some time. At the same time, neither Iran, the U.S., nor China has a serious interest in exports through the Strait of Hormuz remaining blocked for much longer. This is not just about energy sources like oil and gas, but also about helium for the chip industry, sulfuric acid for mining, and precursors for fertilizers, on which U.S. farmers also depend.

Both sides are therefore likely to have a growing interest in reaching an agreement soon. While the U.S. is increasingly positioning itself as a global energy powerhouse, the conflict is politically unpalatable at home: High gas prices are about as popular in the U.S. as rain at a barbecue, and the course of the Iran conflict so far could cost U.S. President Trump the midterm elections in November. Iran, too, is unlikely to benefit in the long run, even if transit fees were to be imposed in the future. An ‘Aya-Toll-Ah’ regime would likely isolate the country even further within the Islamic world of neighboring states and exporters.

The U.S. blockade could lead, within 15 days at the latest, to the Iranian state running out of liquidity—funds that have so far come from the daily sale of around 2 million barrels of oil to China. And China, for its part, has a strong interest in ensuring the blockade does not continue any longer—even though oil reserves were expanded to record levels by last week. These stocks are unlikely to rise much higher: the last tanker that was able to set sail for China before the outbreak of war reached the country about ten days ago.

The oil market itself also continues to signal that the situation should calm down soon. While the spot price has risen back to near $100 per barrel amid the general nervousness surrounding ceasefires, the six-month futures contract is currently trading no less than 17% lower. At its peak earlier this month, the spread was even well over 30%. Normally, the futures contract should trade above the spot price—storage and financing costs are not free. The market’s message is therefore all the clearer: perhaps not the war itself, but the market assumes that exports through the Strait of Hormuz should be possible again in six months.

Meanwhile, on Wall Street, accumulation is taking place as rarely before. While we have braced ourselves for rising stock prices over the past three weeks, the extent of the rally—likely a mix of excessive fear, underinvestment, and short covering—is nonetheless surprising. The light blue area in the positive zone illustrates the scale of this buying frenzy. Recently, however, it has been accompanied by ‘Strong Action’ (the yellow dot) and a slight ‘Exaggeration’ (the red area). This combination often signals a trend reversal. It would therefore come as no surprise if we see increased profit-taking over the next one to two weeks.

In Europe, too, the stock markets have recovered. Nevertheless, it was not enough to reach a new all-time high. And this despite the fact that accumulation has reached a distinctly aggressive level here as well. This is not entirely surprising: While China can tap into additional energy suppliers besides Venezuela and Iran, the alternatives for Europe are becoming fewer rather than more.

Even the Japanese Nikkei recently surpassed the 60,000-point mark for the first time in its history. A key contributor to this was, of course, the persistently weak Japanese currency, which is bringing higher sales prices into exporters’ coffers.

Following the massive gains in most stock markets, general sentiment is also showing its very optimistic side again. The indicator has already swung back up from the valley of tears and is now targeting the record level we observed a year ago following the ‘Liberation correction.’ However, this is not a sell signal—any more than it was a year ago. Quite the contrary: it suggests how sustainable the current movement is likely to be, even if things might get a bit bumpy over the next few days as the market consolidates.

As previously discussed, the Strait of Hormuz is not only used for energy exports. The chip and mining industries are also affected. According to the American Farm Bureau Federation (AFBF), around 70% of surveyed U.S. farmers cannot purchase the required amount of fertilizer due to high prices—which is likely to reduce yields next season. The specter of inflation is thus haunting the markets a bit more loudly again, which is why higher interest rates are expected, in turn weighing on the performance of precious metals.

In fact, according to the Market Pendulum, we can expect the market yield on 10-year U.S. Treasuries to continue rising in the coming days and weeks.

What is intriguing, however, is that U.S. swap markets do not really anticipate higher inflation over the next five years. The swap forward rate over this period remains remarkably subdued.

This is actually the most surprising message from the financial markets over the past week. We are looking into this further, but already recognize the assessment that the selling pressure on precious metals due to potentially higher market interest rates in recent weeks may have been exaggerated. We plan to address this topic next week.

We wish you successful investments!

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Pretiorates

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Pretiorates’ Thoughts — What if the Market Knows Better?

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Pretiorates’ Thoughts – Climbing While the World Wobbles

The S&P 500 is once again within striking distance of its all-time high. And this despite the fact that the Iran conflict remains unresolved, that oil prices continue to fuel inflation, and that hopes for lower interest rates have thus evaporated rather abruptly. One is quite justified in asking how this actually fits together.

Putting emotions and logic aside, our indicators remain bullish, even though the US indices have already gained around 10% since the low at the end of March. After such a sharp rally, consolidations are of course possible at any time. Yet investors are currently accumulating US stocks with a determination rarely seen before. The «Smart Investors Action», which measures the largely hidden transactions of major investors behind the scenes, makes exactly this visible: The light blue area lies deep in the positive zone.

With these massive gains, sentiment on Wall Street is also brightening again. But market sentiment has only just returned to the optimistic zone—and experience shows that this is precisely where the biggest gains often occur.

As already highlighted in the last two issues of Pretiorates’ Thoughts, stocks from cyclical, economically sensitive sectors continue to be favored. Investors are behaving as if the U.S. economy were on the verge of a new upswing…

In contrast, defensive stocks—that is, those stocks investors turn to during economically challenging periods—have served their purpose for now. One example is companies in the utilities sector, which can demonstrate relatively stable business performance even during downturns. In any case, the ratio between the S&P 500 and the utilities sector signals that Wall Street is likely anticipating further price increases.

Another intriguing indicator is the «Happy Friday Indicator», a somewhat unorthodox but by no means unappealing tool: If investors head into Friday evening in good spirits after a successful week, their risk appetite usually increases in the following week. If this happens too often, investors become careless, which is why the indicator functions almost perfectly as a counter-indicator. Recently, however, nervousness before and during the weekend has generally been high for well-known reasons. This extreme risk-off sentiment caused the indicator to drop to its lowest level in recent years—and that is precisely why several buy signals are now flashing…

We also mentioned in the last two issues that we are focusing on the AI and Quantum sectors in this new Wall Street upswing. A great deal is currently happening in the field of quantum computing, even though Wall Street has so far reacted rather cautiously. Nvidia has just launched the first chip for quantum computers. Google, for its part, recently announced that «Q-Day» is expected as early as 2029. This term refers to the hypothetical point in time when quantum computers will be commercially available or powerful enough to break today’s standard cryptographic encryption methods such as RSA or ECC. Just imagine what AI might be capable of when combined with the computing power of such quantum computers…

Even though we’re supposedly only three years away from it, investors are currently focusing primarily on AI stocks, which have already reached a new all-time high. Our AI index has already hit a new all-time high. But here, too, the «after-hours action» has only just returned to positive territory. This suggests that this rally should continue for much longer…

Many investors have also been following the debacle of software stocks since the start of the year. At first glance, these stocks now appear very cheap and could certainly tempt one to buy. We are nevertheless staying away from them. If AI is currently good for anything truly productive, it is for writing or programming software code. The problem for software companies is not even primarily that they themselves could be replaced by AI—which we do not really expect. But AI is likely to replace a great many software users, which is why software companies will probably sell significantly fewer licenses in the future…

Artificial intelligence will massively change our lives in the coming years. All the more so when it is combined with the computing power of quantum computers. Accordingly, the relevant tech stocks are likely to continue driving Wall Street higher in the medium and long term.

Is there another reason why the U.S. economy might be on the verge of a boom—at least according to the indicators mentioned at the beginning? We find one theory that has been brought to our attention more frequently lately fascinating, not yet truly credible, but certainly alarming: Following the peace negotiations, US President Trump suddenly seized control of the Strait of Hormuz—and blocked it. The longer this situation persists, the greater the problem becomes, especially for Asian countries, as their oil reserves run low. Depending on the country, this could happen between now and mid-June.

For China, this would mean that after Venezuela, Iran might also fall out as an energy supplier. The number of global oil exporters is limited — partly due to a lack of pipelines and inadequate infrastructure. Theoretically, it would thus be conceivable that the U.S. could rise to become a global energy powerhouse and China could suddenly become a buyer of U.S. energy. That would shift the geopolitical balance of power once again. And with them, the US petrodollar could suddenly experience a sort of rebirth. At the moment, however, this theory is still pure speculation. Yet US President Trump has just announced that an above-average number of empty tankers are already on their way to the US. Keep an eye on this development!

We wish you successful investments!

If you enjoyed this issue, please click on the Like icon at the top or at the bottom of this email. This is very important in helping our Thoughts gain more followers. Thank you!

Yours sincerely,

Pretiorates

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Pretiorates’ Thoughts — The Smart Money Is Shopping in the Gloom

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Pretiorates’ Thoughts – What if the Market Knows Better?

Unless U.S. President Trump extends his ultimatum to Iran once again, the conflict with Iran is likely to escalate further in the coming hours and days. Iran does not appear willing to comply with the U.S. demand to open the Strait of Hormuz. According to the latest news, the Iranian government has even responded by completely cutting off communications. Much therefore suggests that the feared escalation is likely to occur.

The oil market has already reacted to this development with a further price surge. In our annual outlook for 2026, we outlined five unexpected developments—including the comeback of the oil price. In our thoughts from March 4, we also pointed out the high correlation between gold and oil prices, with the oil price tracking the gold price with a lag of about 20 months. At first, it did not look as though this chart would be confirmed again. In the meantime, however, the oil price is indeed well on its way to closing the resulting spread.

That the oil price will indeed continue to follow the gold price with a 20-month lag is by no means set in stone. The news flow—and especially its gloomy tone—would suggest such a development. Yet the financial markets seem to have a mind of their own on this matter. Yes, the spot price on the oil market has risen sharply since the start of the year. However, an analysis of the futures markets and the various maturities reveals a significantly more nuanced picture: While the spot price of WTI crude has nearly doubled to USD 115 over the past three months, the 12-month forward price stands at just USD 72. The market is essentially telling us nothing other than that it expects the oil price to be around 40% lower in twelve months.

Of course, one could now argue that the financial markets are completely misjudging the situation surrounding the war with Iran. That is always possible. But then one would also have to admit that one is apparently smarter than all other participants in the oil market. The financial markets simply reflect the collective knowledge of all participants—and not merely a single opinion.

But instead of philosophizing about exactly how prices are formed, we can examine whether the market provides other indicators confirming that the situation may be less negative than the news flow—and with it, sentiment—suggests.

Clearly, the long-term General Sentiment Indicator has already fallen deep into negative territory. Paradoxically, this is precisely where its positive significance lies: sentiment is already so poor that a large portion of the negative factors is likely already priced in. The indicator has now also fallen to a level similar to that seen during past lows of the S&P 500 Index.

The picture is similar for the General Sentiment Indicator based on short-term inputs. Recently, however, it appears to be signaling that sentiment is improving again. And we all know what actually always happens in the stock markets as soon as sentiment brightens…

The S&P 500 Index’s direct sentiment barometer also provides initial indications that sentiment has not deteriorated further recently. Here, too, the situation could gradually brighten.

Impressive—and likely surprising to many market participants—is the trend in the ratio between cyclical and non-cyclical stocks. Investors typically buy non-cyclical stocks when they want to reduce risk and take a more defensive position. However, the ratio now shows that investors have recently preferred cyclical stocks. But they only do so when they are convinced of an economic upswing… This doesn’t fit at all with current global geopolitical events. But the market’s message is remarkably clear.

According to a recent analysis, Bitcoin’s price trend is also a good indicator of liquidity —and ultimately of investors’ risk appetite. In recent years, many crypto investors have been convinced that these assets represent an alternative when it comes to managing risk. That may well be true in one form or another. However, developments over the past few months have tended to show that they are primarily a reflection of market liquidity. That is precisely why they are also a useful indicator for the rest of the financial markets, particularly for the stock markets.

Liquidity is the lifeblood of any market rally. When it becomes scarce, stock markets come under pressure. In fact, a comparison between the price movements of the Dow Jones Industrial Average and Bitcoin reveals a high correlation. One even gets the impression that Bitcoin, with its price decline since the fall, has already anticipated the stock market correction. And this is not the first time.

Even though we are showing the comparison with the Dow Jones Industrial here, the comparison with the Nasdaq Index is even more striking. The Nasdaq Composite’s most recent all-time high was reached at the end of October 2025. This makes perfect sense, as typical Nasdaq stocks, unlike many Dow Jones stocks, do not pay dividends or are of a more speculative nature.

Central banks are, of course, primarily responsible for market liquidity. A comparison of global M2 money supply trends with the S&P 500 Index confirms that a correlation exists—provided M2 is given a three-month lead time. It takes some time for new liquidity to be invested and thus have an impact on financial markets. The positive message from this chart: The money supply has recently risen again, which should be a positive signal for equity investors.

Incidentally, the positive message regarding liquidity trends also applies to crypto investors, who have recently been through such a tough time: The expansion of global M2 should actually lead to cryptos soon completing their correction phase.

Back to the stock market. Smart Investors Action shows us how smart investors with deep pockets are behaving. The light blue area indicates whether they are distributing or accumulating. After a phase in which they reduced their investments, they are now accumulating heavily again: the blue area is pointing upward once more…

We are therefore seeing sufficient long-term indications that the stock market is not facing a sustained correction, but rather a potentially impressive rally. Of course: A potential escalation in the Iran conflict in the coming hours could once again trigger a violent reaction in the financial markets. But accumulating rather than distributing should currently be the prevailing view.

We wish you successful investments!

If you enjoyed this issue, please click on the Like icon at the top or at the bottom of this email. This is very important in helping our Thoughts gain more followers. Thank you!

Yours sincerely,

Pretiorates

Find out more about Pretiorates.com

These thoughts will be available as an AI video on Youtube.com within 48 hours: https://www.youtube.com/@Pretiorates

And don’t forget to recommend us - with the button below.

Remember, we are not making any recommendations for investments, we are just giving you ideas for your own analysis and decisions! Do your own due dilligence!

If you like our short analysis, please recommend us to your friends!

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Thank you for being a part of the Pretiorates community. Stay tuned for more updates, analyses, and deep dives into the realms of finance and economics.

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Dear readers,

Before we get to the new thoughts, check out the AI video from our last edition:

Pretiorates’ Thoughts — The Selloff May Be Running Out of Sellers

Please watch and give it a like! Or even better: subscribe to our AI channel!

Pretiorates’ Thoughts – The Smart Money Is Shopping in the Gloom

In last week’s Thoughts, we delivered an edition that sounded more optimistic about the stock and precious metals markets than it has in a long time. Yes, we mentioned that further escalations are possible in Iran. And yes, this war is not over yet, even though U.S. President Trump is now talking about a possible withdrawal. This war is far from over; it has massively shifted the global political landscape, and we will continue to feel the consequences in the years to come. The geopolitics of the Middle East are likely to be reshuffled, as are the global flows in the energy market and, presumably, the balance of power within the NATO military alliance. But we are not political experts; we have our sources for that. We focus on the financial markets. And they are true masters at adapting. We should not forget: The financial markets pool the collective knowledge of all participants. And the market seems to have concluded that the cards have been reshuffled, and trading is proceeding exactly accordingly.

Our conclusion last week was that the financial markets would increasingly decouple themselves from this vexing war. Investors had previously hedged their positions as never before, which is why the correction was not as severe as many had expected. Furthermore, sentiment shifted so rapidly into the deepest pessimism that further massive selling pressure was hardly to be expected. This situation alone suggested that the market would explode at the slightest positive geopolitical turn—which is exactly what we are observing currently.

Geopolitically, however, we stand by our assessment: The world has changed, little to nothing has been resolved, and the Middle East has likely become even more unstable. Consequently, market volatility is likely to remain high. But the bottom line—which, as an exception, we’re presenting right at the start of this issue rather than at the end—remains the same: Even after yesterday’s gains, the stock and precious metals markets remain mired in such pessimistic sentiment that the upside potential remains very high. We’ll attempt to provide confirmation of this with the following charts.

Not entirely surprisingly, Wall Street remains in the valley of tears even after yesterday’s strong recovery. Pessimistic as rarely before.

The general sentiment does not signal to us that we have already seen the bottom. That would require a positive news flow. What we are receiving, however, is the clear message that a counter-movement will be very strong and very sustained as soon as positive news arrives.

The spread between the spot and the 6-month futures contract of the volatility index also remains extremely high. Let’s remember: The market knows more than the individual participant. And it is telling us that it expects a significantly calmer environment in six months.

The indicator that reveals the activities of smart investors behind the scenes signals that they are accumulating heavily on Wall Street. The light blue area most recently indicated massive distribution—but the latest data now points to accumulation again.

Interesting: There has also been massive distribution in European stocks recently. Yet there is currently hardly any sign of accumulation in European stocks. One gets the impression that, with the geopolitical developments, Europe has once again been left holding the short end of the stick—whether on the issue of energy or perhaps also regarding the evolution of military alliances, even if that is still speculation at this point. Yet investors’ indifference speaks volumes… and it does not exactly whisper optimism.

Now a look at Japan, which is particularly affected by energy supply issues stemming from the blocked Strait of Hormuz: Distribution by smart investors has been surprisingly mild in recent weeks, and the Nikkei Index has lost comparatively little ground. Recently, however, selling pressure has been extremely strong, as indicated by the red “Exaggeration” line. The fact that the index was able to absorb this pressure without further losses can certainly be interpreted as a very bullish sign.

Back to Wall Street: The Balance of Power measures the balance of power between bulls and bears in the market. The bears recently had the upper hand as rarely before. Precisely for this reason, this indicator is only truly helpful in extreme situations. Currently, however, it signals that the bears have likely largely exhausted their strength. Usually, the bulls strike back with similar force afterwards. Which sectors are likely to benefit most from this? We are focusing primarily on AI and quantum computing. We will delve into these topics in the near future, but once again, Google has already opened the next chapter (Link).

In last week’s Thoughts, we also pointed out the positive starting point for precious metals. The massive correction since late January has likely washed many investors out of the market—in some cases, not exactly gently. In fact, distribution among smart investors was extremely strong, not only in the West but also in the Chinese gold market, which continues to operate in a different reality than the paper market in the West. The consequence, however, is that many investors likely have too little gold in their portfolios. We’ve already mentioned it: geopolitics is likely to continue playing into the hands of precious metals.

The euphoria in the silver market has completely evaporated since the end of January. The market has thus been reset and can turn a new page. Should this turn out to be bullish—which we expect—a new starting point emerges: The number of open futures contracts in the silver market has fallen to a multi-year low. Increases in margin requirements by the exchange, which repeatedly interrupted or limited the silver rally during the euphoric phase, are therefore unlikely to have the same effect anymore.

The final word this week goes to palladium, which is often overlooked among precious metals. Here, too, the same chart reveals a distinctly bullish constellation…

We wish you successful investments!

If you enjoyed this issue, please click on the Like icon at the top or at the bottom of this email. This is very important in helping our Thoughts gain more followers. Thank you!

Yours sincerely,

Pretiorates

Find out more about Pretiorates.com

These thoughts will be available as an AI video on Youtube.com within 48 hours: https://www.youtube.com/@Pretiorates

And don’t forget to recommend us - with the button below.

Remember, we are not making any recommendations for investments, we are just giving you ideas for your own analysis and decisions! Do your own due dilligence!

If you like our short analysis, please recommend us to your friends!

Share Pretiorates’s Thoughts

Thank you for being a part of the Pretiorates community. Stay tuned for more updates, analyses, and deep dives into the realms of finance and economics.