MacroVoices#308 Ronald Stoeferle: Precious Metals Update

Episode Summary

Executive Summary: Macro Voices Episode 308 centers on the post-FOMC surge in volatility and what it signals for equities, the dollar, rates, oil, and gold. Eric Townsend argues markets are reacting to Fed liquidity withdrawal rather than imminent recession, while Ronnie Stoeferle says the Fed will likely be forced into a shallow, short hike cycle that ultimately supports gold and other real assets.

Main Topics: Fed policy, equity volatility, and market interpretation (Priority: 5/5): Eric and Ronnie debate whether the selloff reflects an impending recession or a liquidity-driven market warning that the Fed is overstepping. Both expect the Fed to become more dovish than currently signaled, but Eric emphasizes uncertainty and the need to watch how markets digest the messaging. US dollar strength after the FOMC (Priority: 4/5): The dollar index broke to a 52-week high on hawkish Fed expectations. The discussion focuses on whether this is a temporary knee-jerk move or the start of a broader trend toward a much stronger dollar if the Fed stays the course. Crude oil tightness and backwardation (Priority: 4/5): Oil remains strong despite inventory data that was not especially bullish. The key driver is physical tightness, especially fears about Cushing deliverability and widening time spreads, which imply shortage concerns in the near-term market. Gold’s reaction to hawkish Fed policy (Priority: 5/5): Gold sold off sharply after the FOMC, breaking below moving averages and key support. Ronnie argues the move is likely a temporary reaction and that gold is pricing in a short, shallow tightening cycle that will end bullishly for the metal. Inflation, real yields, and the monetary backdrop (Priority: 5/5): Ronnie argues that inflation is real and likely to remain sticky due to wage pressure, housing lag, and shifting fiscal dominance, even though reported velocity remains low. He sees negative real yields and future policy repression as strong long-term support for gold. Bitcoin, gold, and alternative stores of value (Priority: 3/5): Bitcoin is presented as a risk-on asset and a media attention magnet, not a perfect substitute for gold. Ronnie sees both as non-sovereign hedges against monetary debasement, with Bitcoin still highly volatile but increasingly institutionalized. Mining shares and commodity exposure (Priority: 3/5): Despite weak historical performance, gold miners are described as deeply undervalued with strong margins, cleaner balance sheets, buybacks, and M&A activity. Ronnie argues the sector offers leveraged upside if gold makes new highs.

Key Arguments: The equity selloff may reflect a liquidity regime change rather than a classic recession signal; the Fed is withdrawing stimulus as the pandemic ends, which can be good for growth but bad for assets dependent on easy money. The market is likely pressuring the Fed before the next meeting; if the Fed continues hiking aggressively, it risks a much larger correction, but both speakers expect policy to soften. Gold’s weakness after the FOMC is likely a knee-jerk reaction, not a fundamental breakdown; Ronnie believes the current hike cycle will be the shortest and shallowest in Fed history. Inflation is not merely transitory because wage pressures, housing costs, and fiscal dominance are beginning to feed through the economy, even with low money velocity. Low velocity does not negate inflation risk; instead, it suggests policy distortions may be building toward future financial repression, yield curve control, or even currency devaluation. Oil’s rally is being driven less by headlines than by physical market tightness and deliverability fears, especially around Cushing and WTI contract settlement. Bitcoin is still mainly a risk appetite indicator; it has gained legitimacy but remains too volatile to be a pure defensive hedge like gold. Gold miners look unusually cheap relative to history and the broader equity market, and should outperform if gold moves to new highs and investors re-rate real assets.

Data Points: S&P 500 correction: more than 10% - Eric describes the equity market drawdown from recent highs to the September lows. S&P 500 new highs in 2021: 70 - Ronnie cites the exceptionally strong 2021 equity market performance. CAPE multiple: 40x - Ronnie says the market entered 2022 at a very expensive CAPE valuation, a three-standard-deviation event. Household ownership of equities: $45 trillion - Ronnie says US household equity ownership is at an all-time high and far above historical norms. Fed hikes expected by market: 3 to 4 rate hikes in 2022 - Ronnie argues the market does not believe the Fed will actually deliver this full tightening path. WTI crude inventory change: +2.4 million barrels - Eric reviews the EIA report as part of the oil discussion. Cushing inventory change: -1.8 million barrels - Used to illustrate physical tightness in the delivery hub. Gasoline inventory change: +1.3 million barrels - Part of the weekly EIA petroleum inventory report. Distillate inventory change: -2.8 million barrels - Part of the weekly EIA petroleum inventory report. US crude production: 11.6 million barrels/day - Eric notes production ticked down by 100,000 barrels/day. Gold ETF inflow: 28 tons in one day - Ronnie says Friday’s GLD inflow was the largest net inflow in US dollar terms in history. GLD inflow earlier in week: 3 tons - Ronnie references Wednesday’s smaller ETF inflow before Friday’s surge. Gold performance in 2019: +18.3% - Ronnie notes gold had already performed strongly before the pandemic inflation impulse. Gold performance in 2020: +25% - Ronnie says gold rose sharply during the pandemic and inflation shock. Gold performance in 2021 (USD): -3.6% - Ronnie says last year’s gold performance was disappointing in dollar terms. Gold performance in 2021 (EUR): +3.6% - Ronnie notes euro-based investors saw a positive return due to currency effects. SP 500 price-to-sales: 3x - Ronnie highlights elevated equity valuations. SP 500 price-to-tangible book: 15x - Ronnie uses this to underscore equity expensiveness. CPI in Dec 2020: 1.2% - Ronnie contrasts this with the later 7% reading to show inflation acceleration. CPI in Dec 2021: about 7% - Ronnie says this was the highest since June 1982. 1-year inflation swap: 3.7% - Ronnie cites market expectations for inflation over the next 12 months. 2-year inflation swap: 3.3% - Ronnie cites market expectations over two years. John Deere labor settlement: 10% immediate salary bumps - Ronnie uses this as evidence that wage pressure is emerging. John Deere bonus: $8,500 - Part of the wage/benefit package Ronnie cites. Gold at 2021/2022 discussion level: around $1,850/oz - Ronnie references mining margins at prevailing gold prices. Mining all-in sustaining costs: about $1,250/oz - Ronnie says miners still have strong margins at then-current gold prices. VIX peak: almost 40 - Patrick says volatility spiked, potentially signaling a tradable bottom. S&P futures level during discussion: around 4,312 - Patrick references this as the market digests the selloff. Euro support/breakdown area: 110 to 108 possible - Patrick says the euro could trade back toward 2020 lows. WTI backwardation: March 2022 contract $1.35 over April 2022 - Patrick explains the large near-term spread reflects deliverability fears. 10-year note weekly loss: more than 4% total return - Ronnie says the 10-year had its worst week in 42 years. Possible gold miners dividend yield: 2.3% - Ronnie notes miners now offer meaningful yield relative to the S&P 500.

Pivotal Quotes: "the market is telling us that the Fed has signaled a policy error" — Eric Townsend: Eric presents the mainstream recession/policy-error interpretation of the equity selloff. "this will be the shortest and the shallowest rate hike cycle in the history of the Federal Reserve" — Ronnie Stoeferle: Ronnie’s core thesis is that tightening will be brief and ultimately bullish for gold. "the market roughing up the Fed" — Eric Townsend: Eric’s metaphor for the selloff as pressure on the Fed before policy decisions.

Implications: Listeners should expect continued volatility across equities, FX, rates, and commodities as markets test whether the Fed will really tighten. The episode argues this could be the setup for stronger gold, miners, and hard assets if policy reverses.