Gold’s decline: It was never the war

It was about the rate channel. 

Gold and silver are falling hard today, with silver leading the way down at several times gold's pace. If you are looking for the reason in the Iran headlines, you are looking in the wrong place. The war is winding down, the deal is signed, and oil is flowing again. None of that is why the metals are dropping, and the pieces of the Iran story still in doubt do not change it, because every way they can break from here points the metals lower. They are dropping because the two forces that have driven this market all along are pushing in the same direction at once.

The rate door reopened, and fast

A week ago, with the peace deal in hand and oil coming off its highs, the market had talked itself back into a softer Fed. The odds of a rate hike by year-end had fallen to around 57%. That lasted about a week. Today the market is pricing a hike at close to 90% odds, and both Deutsche Bank and Bank of America now expect the move as early as September. The Fed's preferred inflation gauge lands Thursday and is expected to have climbed to around 4.1%, up from 3.8%. The dollar closed last week at a fresh high above 100 and is firm again today.

This is the channel I have described for months, running in the open.

Higher inflation keeps the Fed leaning toward a hike, a hawkish Fed lifts the dollar, and a firm dollar presses gold.

The war is gone and that machinery is still running, because the war was never the thing turning it.

The accumulated inflation and the labor market are. The deal in Switzerland did not change a single thing about either one, which is why the brief dovish hope it bought lasted exactly one week.

"Gold and silver are crashing with the stock market today. Aren't they the safe haven when stocks fall?"

This is the question of the day, and the answer matters. No, not in a sell-off like this one.

A second straight day of heavy selling is running through the most stretched part of the market. The AI trade is cracking. Chip stocks are down hard after a sharp drop in memory shares overseas and a guidance miss from one of the sector's bellwethers. And the SpaceX listing, the largest in history two weeks ago, has now fallen for three straight sessions, given back more than $600 billion in value, and slipped below its first day's opening price. When the most speculative trade in the market unwinds like that, it does not stay contained. Investors sell what they can to raise cash and cut risk, and the firm dollar adds to the squeeze on anything priced in dollars.

In that kind of move, gold and silver are not a refuge. They are a source of liquidity. And the higher-beta names fall hardest, which is why silver is down several times more than gold today and the miners are down more still. This is the same thing I have pointed to over and over. When stocks roll over, silver and the mining stocks take the worst of it, not gold. Today is that pattern at full volume.

The SpaceX move is worth a moment, because it is the signal some of you asked about weeks ago. The deal did not mark the top by failing to sell. It sold fine. It marked the top by being absorbed and then unwinding, with the exhaustion showing up in the sessions after the listing rather than at it. That is what a top in a speculative cycle tends to look like, and it is now draining the liquidity that propped up the whole risk trade, the metals included.

Of course, the stock might reverse and rally, but right now it really doesn’t look good.

Iran: Probably over, and bearish for Gold either way

I want to be careful here, because the war is probably over, but it is not clean, and the gap between those two things is the point. Negotiators agreed on a road map this week, and Iran invited inspectors back, which is real progress. At the same time, Iran declared the Strait closed over the weekend before its own foreign ministry walked it back, the Iranian president said the country will never give up enrichment, the nuclear talks in Switzerland were postponed, the fighting in Lebanon has not stopped, and the central route through the Strait is still mined. So, the outcome is genuinely unsettled.

Here is why that does not help gold. A clean, durable peace is already priced, and it never put a bid under the metal in the first place – at least not directly. Gold fell roughly 20% during the shooting war. So, if the peace holds, the premium keeps draining and gold gets nothing from it. And if the unsettled pieces break, Lebanon, enrichment, or the Strait, oil spikes again, and higher oil feeds straight back into the inflation and rate pressure that has done the real damage all along. Peace holds, gold gets no help. Peace breaks, the rate channel presses it lower. The surprises from here run bearish for the metals whichever way they fall. Through all of it this week oil kept flowing, with Iran shipping more than 30 million barrels under a new license to sell, and the metals kept dropping. A week this messy would have put a bid under gold if the conflict were the thing that mattered. It did not.

The technical picture supports more declines

The chart and the fundamentals point the same way. The dollar has confirmed its breakout above 100 and looks higher from here.

I’ve been writing about the incoming breakout above 100 for months.

It’s here. Congratulations to everyone, who is not surprised, but instead is making money on this move.

This is the highest value of the USD Index in more than a year, and there’s little resistance ahead until much higher levels. Yes, there’s the previous highs at 102, but it’s not even close to being as significant as 100 was, so I don’t think that the 102 level will be able to hold the rally in check for longer.

I expect the upcoming move higher to be huge, and it could be just as sharp (or similarly sharp) as the 2025 decline was.

The broad bottom appears to be complete, and since the previous broad bottoms (marked with green arrows) were often followed by big, medium-term rallies, it looks like we’re going to get one of those soon. In fact, it looks like it’s already underway and since the bottom (base of the move) took longer to form than the previous ones (since 2008), it’s likely that the following rally will be really sizable.

The implications for the precious metals market and for commodities as well as stocks, are bearish.

Speaking of stocks, they are down today, and while the move lower is not significant yet, it’s important to note that it started after stocks reached my upside target of 7,650 (the S&P 500 futures were just 1.25 away from it when they topped). This means that this could have really been the top – just as the SpaceX’s reversal might be suggesting.

Lower stocks would imply lower commodities, precious metals, and – most importantly – mining stocks.