Selling the future to survive the present

Silver edition

gold & silver, 1H, 1 month view - click to enlarge

Silver is down 25% this month. Gold is off 13%. The world’s largest gas field just got bombed. Energy infrastructure is burning across the Gulf. Central banks have been stacking gold for three years straight. The structural case for precious metals has never - and I mean never - been more obvious.

So naturally, we’re selling.

“Efficient Markets”, ladies and gentlemen.

Let me walk you through the exquisite logic of it all, because it actually does make sense, even if it requires a brief visit to the asylum to understand.

The textbook says war = buy gold. Geopolitical panic = safe haven flows. Every finance professor that didn’t enlist will tell you this. And the theory is actually correct. Reality just doesn’t agree with it. What they’re not accounting for is what happens when the war is your income stream.

Think about who got obliterated this week. Israel struck South Pars - the world’s largest gas field, straddling the Iran/Qatar border. Iran hit back, targeting Ras Laffan in Qatar (20% of global LNG supply), two Saudi refineries in Riyadh, the UAE’s Al Hosn gas field, Kuwait gas units. This is a fundamental reshaping of the global LNG outlook, with disruptions lasting months, at least.

The Gulf states are hemorrhaging oil and gas revenue. Their infrastructure is on fire - sometimes literally.

So what do you do when your income stream evaporates overnight? You sell your nest egg. Qatar, Saudi Arabia, UAE accumulated gold (and silver) during the good times. Now those sovereign wealth machines need dollars to keep their populace from revolting. Time to liquidate something. Gold and silver sitting in those portfolios are the most liquid assets they have. Out they go.

They bought gold for a rainy day. It’s pouring now.

That’s theory one. It fits the tape.

Theory two is more mechanical: the Fed held rates again, not even a hint of cuts in 2026. Energy shock equals inflation, inflation equals higher-for-longer, higher-for-longer equals dollar squeeze. The dollar is surging. Brent crude is at $111. And because precious metals are priced in dollars, a surging dollar mechanically hammers their price.

(Margin_Call42 entered the chat)

A lot of leveraged money was sitting in … well … in about everything, but let’s go with oil and energy. Now that made perfect sense before gas fields started to spontaneously combust but stopped very quickly after. When those blow up - and I’m not talking about gas here anymore - you don’t get to choose what you sell. You sell whatever is liquid. Whatever is profitable. Gold and silver at January’s prices qualified on both counts. The precious metals dump isn’t people wanting to sell those. It’s people having to sell to cover positions they can no longer hold. Forced liquidation doesn’t care about fundamentals.

Theory three I’ll include purely for completeness, and because ignoring it entirely would be intellectually dishonest. Wars have a long and distinguished history of arriving at moments of extreme financial stress - stress that then conveniently gets attributed to the war rather than to the underlying rot. Weimar, The Gulf War, 2008... the timing of geopolitical explosions and the need to blame something - just about anything beside politicians - for the economic damage that was already baked in has a way of rhyming. I’m not saying that’s what this is. I’m just saying that the pattern exists, and it’s plausible enough to mention, and whoever benefits from the distraction usually benefits quite a lot.

Make of that what you will.

All three theories are probably right at the same time. Which is the market’s way of being maximally annoying.

And you know what is truly absurd? Gold down. Silver down more.

But you might not know it (/s)… but silver carries a double exposure: monetary metal AND an industrial one. When recession fears spike alongside inflation fears - stagflation territory, you know, the thing everyone insists we’re not in - silver gets hit from both sides simultaneously. Investment demand craters on rate fears, industrial demand outlook darkens on growth fears. That’s probably why silver went from $96 to $65 in a straight line while gold “only” went from $5,419 to $4,500.

(drumroll please)

The 1973 oil shock pushed people into smaller, more efficient, cars. This one will push people into EVs and solar panels.

South Pars and North Field make the case loud enough. Louder, if you happened to be nearby.

If this doesn’t push governments, companies, and ordinary people toward energy independence - off-grid, distributed, or at least not-dependent-on-a-field-that-can-be-bombed - nothing will.

No geopolitical argument, no climate report, no economist’s model has ever made the case as viscerally as those missiles flying around.

And every single one of those alternatives runs on silver.

Solar panels? Needs silver for the photovoltaic cells - and no reasonable substitute exists at scale. EVs? They need it for their electronics. Grid storage, fast chargers, the entire electrical infrastructure being hastily bolted together as the world panics about the Middle East being, let's say, temporarily unavailable.

All of it silver-intensive, and all of it non-negotiable.

And if you’ve been reading my previous articles, you already know how the supply side was a disaster long before the Middle East decided to help.

This war turbocharges the case for silver.

So the market’s response is, logically, to sell silver 25%.

I can’t even argue with this. I can only observe it, take a deep breath, and reach for my IBKR account.

I’m not calling the bottom. No1 can do that. Silver could test $60 before this reverses. The margin calls aren’t done, the GCC liquidation isn’t done, and the Fed isn’t turning around tomorrow. I’ve been early on silver before. Embarrassingly early. Bought-at-the-top, watched-it-go-sideways-for-a-year early.

This time I’m buying into a 25% monthly crash while missiles are still in the air. Picked up a small position in SILJ today - just toes in the water, nothing heroic. So, you know. Take my optimism with the appropriate amount of salt.

There are probably healthier ways to process a war.

Don’t tell my therapist.