Gold Falls To $3,600 If Yields Do THIS Next | Nicky Shiels

0:00This episode is brought to you by PayPal. You know how a mom's bag has everything? Sunscreen? Snacks? A stapler? The new PayPal app is like that, but for your money. Shop, pay, manager account, and earn rewards all in one place. And with purchase protection on eligible items, biometric security, and pasquies, you're protected at every step. Download the new PayPal app to get started. See PayPal.com slash protection terms. Chronic migraine, 15 or more headache days a month, each lasting four hours or more, can make me feel like a spectator in my own life. Botox, on a botulinum toxin A, prevents headaches and adults with chronic migraine. It's not for those with 14 or fewer headache days a month. It's the number one prescribed branded chronic migraine preventive treatment. Prescription Botox is injected by your doctor. Effects of Botox may spread hours to weeks after injection causing serious symptoms. Alert your doctor right away as difficulty swallowing, speaking, breathing, and eye problems or muscle weakness can be signs of a life threatening condition. Patients with these conditions before injection are at highest risk.

1:02Side effects may include allergic reactions, neck and injection site pain, fatigue, and headache. Allergic reactions can include rash, welts, asthma symptoms, and dizziness. Don't receive Botox if there's a skin infection. Tell your doctor your medical history, muscle or nerve conditions, including ALS, Lugeric's disease, Myastthenia, Gravis, or Lambert Eaton syndrome, and medications, including botulinum toxins, as these may increase the risk of serious side effects. Why wait? Ask your doctor, visit BotoxCronicMigraine.com, or call 1-800-44 Botox to learn more. The only way out is current cell fear basements. Gold should still outperform the USD and real yields. Gold is still studying at $840 premium above fair value. But that $840 is still on a local level. You know, during a Trump era is still on the lows. And that's what we call sort of the debatement or fear premium that we think gold should continue to uphold. We're back now to talk about the future of golden precious metals with Nikki Sheel's head of research and metals strategy at MKS Pamp. Nikki was on the show several times in the last year.

2:02We'll put the links down below. So you can check out her last interview with me. Nikki, good to have you back. Thanks for joining us. Yeah, great to be back. Thanks, great to be back. The biggest question I think a lot of golden investors have right now is whether or not the metal was going to survive a higher interest rate environment. By survive, I mean maintain current levels. If not, retrace back to pre-2026 levels before the massive run up that gold has experienced in the last year. Right now, we're sitting at just over $4,100 and announced. And the 10 year and 30 year yields, as you know, have been rising. They continue to rise even today on the 30th of September. Many economists have believed that this is a symptom of higher oil prices. So what is the relationship between interest rates and gold? Let's start there. It's a great question. Gold has had a tumultuous relationship with interest rates. Over time, you know, historically it is inversely correlated with higher interest rates, especially higher real interest rates.

3:05But since 2022, that correlation has sort of weakened somewhat again because central banks and physical buyers enter the space. And so what you see right now is sort of a re correlation because you've got the sort of vicious cycle of high-volonger oil. Brain is comfortably above 100. They're sort of a confidence crisis confidence in bonds with the solar for cross, not just the US, but other fixed income asset classes leading to higher yields. And so yes, we have seen gold reverse from, you know, locally from a $45 high recently, you know, for 4100. So it really is contending with a higher dollar environment, tactically, a higher yield environment. So the substantial headwinds been thrown at gold. But I think we narrow the end on the short-term basis.

4:06If you just look at what's happened this week, yesterday we had weaker U.S. data, consumer confidence, Joltz numbers. You then had New York Fair President Williams come up with some pretty dovish remarks. I think both the rates, dollar and dollar market are trying to price in a series of hiking cycles both in 2026 and 27. I think that's a little too aggressive. And I think, again, technically on the charts, US dollar just seems to be up at that resistance levels failed several times before. So gold holding in, it's holding in which should be at any of supports around 4000. The structural bullish long-term drivers, you know, debatement, digitalization, diversification against other assets hasn't gone away. Central banks continue to add so to ETFs and so do sort of the investors who are no longer who aren't long gold are allocating to the space. Okay. I want to draw the viewers attention to your rolling gold model, 120-month regression on gold of gold rather on US 10-year real yields plus the DXY.

5:19Tell us about why you've picked these two factors in particular for your regression model and ultimately what the model is showing right now. Yeah, so, you know, you're very core traditional drivers of gold and we're talking over the past 50 years has been real rates and the dollar. So sort of stuck with that that again, you know, sort of as I previously mentioned that relationship really broke down in 2022 with the sanctioning of Russian assets where you drove a sort of price in sensitivity from central banks into the gold space. Regardless of whether the real rates or the real rates or the dollar is higher. So what we're trying to model here is just what the fair value or model implied gold price should be given where current real yields in 10 years are and where current DXY is. And what we're seeing is, you know, as of today, basically gold is still sitting at $840 premium above fair value, but that $840 is still on a local level, you know, during a Trump era is still on the lows.

6:32And we do think what and that's what we call sort of the debatement or fear premium that we think gold should continue to hold as we we you know, fiscally G 10 global countries are basically on a pretty irresponsible fiscal path. And I think the only way out is is current sale fear debatements. So yeah, we, you know, gold should should still outperform the USD and real yields. And I think you know, it's basically entering a pretty cheap area regarding where these are the other class so. What if you're making this assumption that we have a cheap area right now is does your model give a fair value where at which gold would no longer be cheap. Yeah, if you scroll down to the second graph, which is basically the second one, the one after that one.

7:32Which basically just gives a historical level so right 840 I mean a thousand dollars since Trump was elected, you know, to me seems like a pretty fair average in post 2024 era. So again, that's what you know that's where the I think the fair value fair premium should be again like where we saw the sort of the Russia since Russia invaded. You know that average then was sitting at was around 500. But things have drastically changed since and we have seen central banks deepening and broadening their purchases of gold and these are long term strategic allocations. And especially where emerging market gold holdings are the percentage of total effects reserves. They know a near way developed market gold holdings are so that there's some there's a big catch up that emerging markets need to do on the gold space in order to sort of bring that bring that equilibrium equilibrium up between effects reserves and gold reserves.

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9:42The new PayPal app is like that, but for your money. Shop, pay, manage your account, and earn rewards all in one place. And with purchase protection on eligible items, biometric security and pass keys, you're protected at every step. Download the new PayPal app to get started. See PayPal.com slash protection terms. Chronic Migraine, 15 or more headache days a month, each lasting four hours or more can make me feel like a spectator in my own life. Botox, on a botulinum toxin A prevents headaches and adults with chronic migraine. It's not for those with 14 or fewer headache days a month. It's the number one prescribed branded chronic migraine preventive treatment. Prescription Botox is injected by your doctor. Effects of Botox may spread hours to weeks after injection causing serious symptoms. A lurcher doctor right away is difficulty swallowing, speaking, breathing, eye problems or muscle weakness can be signs of a life threatening condition. Patients with these conditions before injection are at highest risk. Side effects may include allergic reactions, neck and injection site pain, fatigue and headache. A lurcher reactions can include rash, welts, asthma symptoms and dizziness. Don't receive Botox if there's a skin infection.

10:42Tell your doctor your medical history, muscle or nerve conditions including ALS Lugeric's disease, Myasthenia Gravis or Lambert Eaton Syndrome, and medications including botulinum toxins as these may increase the risk of serious side effects. Why wait? Ask your doctor, visit Botox Chronic Migraine.com or call 1-800-44 Botox to learn more. This premium that happened at the onset of the Iran War, how much of gold's declined subsequent to the start of the Iran War, has to do with the Fed announcing that they may hike rates this year. It's not announcing but basically tell a path that hike, you know, you're recall that in March, a new Fed sure came on board and he basically said that inflation has been a persistent problem and it might be a persistent problem and gold went down subsequently. Yeah, very good question, sort of what not gold or fettestal rate, I think three key factors, one, the switching of Fed from recall back in January pricing in Fed cuts.

11:52So we switched from one or two Fed cuts to a series to pricing and a hiking cycle in the space of six months. So that drastic turnabout as a use economy generally performed. Contrary to that's the first factor, a wash was, you know, in that same vein, wash was perceived as a somewhat pretty hawkish. The second one was a big energy oil shark, right, and especially for certain countries or individuals, funds that that say it's a sort of financial tightening events. And we did see some central banks actually monetize gold in response to that, especially those that are physically constrained and really exposed to higher energy imports. So that energy sort of that that shark in it in the crisis just led to gold being monetized and then and then thirdly, a big part of that run up in gold in q1 can be attributed to sort of fast money momentum.

12:53Retail getting evolved in the space. And I think and that has has generally migrated into AI. So you had space XI be area ton of sort of the AI tax actor. So was able to track capital and flow and retail flow from the space. I think those three factors sort of combined within, you know, the first half of the year to drive gold from what would say was, you know, one in a hundred year event, right. So and then it was firing on all cylinders. It was very one way. And I think it's a lot cleaner now. It's a more of a two way market, which which we which we like and believe in. I'm noticing your model. You didn't use inflation CPI past PCP or any sort of forward looking inflation measures like maybe a tip shield or five year break even rate, for example. Is there a particular reason why you've omitted inflation as a factor for your regression model. I did use inflation. I used 10 year 10 year 10 year real yields, which was just 10 year 10 year nominal minus 10 year break.

13:59Yeah, that was that was implied in the 10 year real year. Let me just rephrase a lot of people think that gold is an inflation hedge. And by that logic, would it not make sense to use inflation as an isolated variable, not part of a nominal 10 year minus inflation a variable or Yeah. Look, I think, you know, gold is certainly historically an inflation hedge, but I think it's it's one that's the fear of inflation or the fear that policy makers may not be ahead of the inflation curve, right. And at the end of the day, it doesn't pay dividends. You know, you speak to some fine, fine manager at the moment and it's pretty juicy to allocate into some of these corporate or munibonds that are paying six percent gold doesn't doesn't pay any any yield of dividends. So it's constantly a struggle between how much of how much of it is a sort of fear driven inflation hedge if the if the belief that maybe central banks are going to be behind the inflation curve in which case, we'll get lower real real rates.

15:13And or if right now what higher real rates are indicating is that policy makers are perhaps ahead of the inflation curve. So it's extremely financial tightening gold likes, looser financial conditions, loose the monetary conditions. So it's certainly a headwind in that respect. And are we in an environment where real yields are going to be rising in what what is your outlook here. Look, it's very I mean, real yields back up to also 2007 levels is is pretty historic. I think, you know, I really took key to Williams's comments yesterday because I think it both sort of high, you know, high and for longer oil and high and for longer real yields. And it is is tightening sort of both Wall Street and Main Street. I think it's financially tight conditions. So let's see what the fair does. I think it's very much contingent on that to see what the inflation data comes out was sort of over the next.

16:15And then we got and then we haven't really talked about like we've got, you know, US midterm risk or political risk. So I think, you know, it's the if if real yields continue to rise and we know we're not see if we see sort of, you know, it's 50 basis points higher in that in that real 10 years. Absolutely. I think gold is down another $500. I just think it's near the end. I think it's really it's really outrun and pricing a series of hiking cycles. And I don't expect the fed to enter series of hiking cycles in both 26 and 20. Well, I know that gold response to real yields, which we talked about, but somebody will look at this chart and simply ask, well, golds being a safe haven or at least perceived safe haven asset should compete with bonds. And right now there's a global bond sell off as you know with yields nominal yields going up around the world, not just in the US. Why isn't that capital from bonds being pushed into gold more? I know you I know you said it went to AI stocks and I investments, but I'm just thinking logically speaking, wouldn't a similar asset like a substitute product like bonds flow into gold.

17:28Yeah, no good question. I think gold is seeing some rotation from bonds. So the rotation of bonds into gold. If if there is sort of any sovereign risk or credit risk fears, gold will win over that. And it's evidenced in ETF inflows ETF inflows being super, super steady and rising into sort of this higher yield environment, which does suggest stickier allocators are moving from bonds into gold. But gold at the end of the day is such as a much smaller asset class versus fixed income. So you may get may have strategic reallocations from bonds into gold, but store your more tactical fast money and your seat your most systematic CTA type players are selling gold on an expectation of higher yields and a fit hiking cycle. Okay. Is silver just moving on to some of the other metals now is silver a gold story at this point where do silver have its own fundamentals that you're following.

18:31The silver has been fundamentally in a in a deficit for quite a number of years or about six years. You know, it's a critical metal. It's now classified as a US critical on strategic metal. And you know, when you look what's happening with copper super exposed to sort of tariff exposure with uncertainty of tariffs. You know, silver can certainly has the ability to sort of ride on copper's coattails, but right now the correlation with gold is super strong. So it really has become was just trading very much as a gold proxy. You know, the sort there has been with silver is the scolette, you know, 75 plus you do see a dent to industrial demand where it industrials can thrift into other metals because silver becomes really expensive in solar panels or sort of electrification of goods.

19:31So right, yeah, silver is always high beta. I think if you get a week of dollars, silver really up a forms on that. So it looks interesting here. Always much more volatile than gold naturally. But yeah, it's it's it's sort of acting more like a precious metal than industrial at the moment. Does copper signal anything when it comes to economic growth copper has been I'll put up a charge just a minute copper has been trading very closely with the stock market some have even called it a stock market proxy. If you want to go that far. What's your what's your take. I think very much copper is a combination. It's got a really interesting narrator from both the bottom up fundamentals like it is it is in a sort of structural deficits. You combo the mine overnight. Capital went into it went into tech over the last 10 20 years and not into not into these critical and strategic metals. So on that end you've got that that supports and then you've got policy uncertainty, stemming from the US around tariffs that is really at a adding massive inflows into into the US.

20:41And then on top of it. It's you know it's it's used it everywhere from AI to electrification of almost anything we use. So it you know that the monster is really attractive to investors. It's a large asset class. It's been promoted a lot by some of your more sort of well known investors on on X and across across social media. So yeah it really is up a formed and it's it's kind of kind of in sort of because if you look at the got one market and you say we got a flattening yield curve. We kind of entering recessionary territory right when murdered you know the yield curve is heading towards inversion. Yeah we got copper at 15 K so copper is really not sigling any slowdown. I think it's sigling more sort of policy answers and see tight fundamentals and a story when investors want real assets and this one kind of fits the bowl. Yeah it historically copper and gold have moved closely together recently. I've noticed copper has been trading more alongside stocks.

21:44Is this the new norm for base metals. I think it's a base metals and industrial metals are certainly you know correlated somewhat more with stocks or risk on movement and I think perhaps there's some of a sort of real asset hedge that's happening you know if you if you're a super exposed to AI and and sort of equities perhaps instead of over about you know gold gold is 2000 dollars through it's inflation adjusted highs which is 3600 so golds on that on that level quite a lot. So maybe maybe copper is as much so there's probably some of that happening but yeah certainly been trending and I just want to go back to your second chart on this document here your gold implied model sorry model implied gold price rather which is the blue line and the actual gold price. I just want to make sure I'm reading this correctly here this is taking out the risk premium correct right so the difference between that is 840 which was the charts the sort of field the basement premium on that the chart we talked about earlier so yeah basically the model implied gold price is where gold should be right now gold should be you know closer to like 3200.

23:01And it isn't a holding up for yeah, a period of reasons against central banks continue especially by China the PBC some Asian central banks really kind of backs up in gold around 4000. You've got just consistent allocations from the ETF space and so that they should they should be a premium above that model implied price since since Russia since 2022 it's just helping that premium should be in we say their premium is pretty low at the moment. Some of my look at this chart and say that's a pretty bearish chart unless you're assuming that this premium will hold what would you say to that. Yes so if you're assuming that gold has fully priced in the basement that most most countries will sort of vote in politicians they're going to put in in place sort of responsible fiscal plans then yes absolutely out of you know.

24:02It needs to revert back to to fair value model and price pricing but we know sort of you know the fiscal trajectory of most of Europe UK I mean Japan is sort of led us and in the US it's it's just on a really unstable and I'm just saying all to directory. So setting 40 trillion debt and how do you finance 40 trillion a debt when you've got you know when you've got sort of 30 30 year yields where they are and I think that's you know we get in that intervention markets are starting to crack and croak where you have to get the that the treasury secretary but sense coming in intervening in both the currency market in the bond market in order to inject some sustainability there's a lack of liquidity so I think. A lot of that is a sign signaling markets kind of reaching breaking points because of sort of debt levels and the fiscal trajectories do you think governments around the world are looking at their own spending and at the same time looking at gold as an alternative way to hedge against currency volatility we're not so much.

25:17Thank you yes you know certainly governments central banks look at gold as a reserve allocation for a period of reasons whether it's an inflation hedge certainly currency hedge which plays into the basement it's not just a hedge against the US dollar the hedge against fear it's big reason why Bitcoin I do think it's a big reason why Bitcoin has re rated from what 65 K to 85 K sort of an easy hedge against or cheaper relatively cheaper. Easy hedge against you know kind of debatement fears so yeah governments will certainly look at gold or alternatives as a hedge against fear and and currency volatility for sure. But if if we were to look at what is currently happening in the market you said that the bond market may signal breaking point for other markets if we do have announcing this is going to happen if we have a scenario which yields rise to such an extent that it causes a sell off in risk assets what happens to gold in that scenario.

26:25This episode is brought to you by PayPal you know how a mom's bag has everything sunscreen snacks a stapler the new PayPal app is like that but for your money shop pay manager account and earn rewards all in one place and with purchase protection on eligible items biometric security and past keys you're protected at every step download the new PayPal app to get started see PayPal dot com slash protection terms. Chronic migraine 15 or more headache days a month each lasting four hours or more can make me feel like a spectator in my own life Botox on a batch of line of toxic a prevents headaches and adults with chronic migraine it's not for those with 14 or fewer headache days a month it's the number one prescribed branded chronic migraine preventive treatment. Prescription Botox is injected by your doctor affects of Botox may spread hours to weeks after injection causing serious symptoms a lurcher doctor right away is difficulty swallowing speaking breathing eye problems or muscle weakness can be signs of a life threatening condition patients with these conditions before injection or at highest risk side effects may include allergic reactions neck and injection site pain fatigue and headache allergic reactions can include rash welts asthma symptoms and dizziness don't receive Botox if there's a skin infection tell your doctor your medical history muscle or nerve conditions including ALS

27:41and Cineagravice or Lambert Eaton syndrome and medications including botchaline and toxins as these may increase the risk of serious side effects. Why wait ask your doctor visit Botox chronic migraine dot com or call 1-800-44 Botox to learn more. It historically depends on how deep a cellophers if it's a 5% cellophane haspiacs it probably have a minimal effect but if we're talking about a deep drawdown 10 to 20% you look it's it's you shoot first and ask questions later so go get strugged down probably not as much as every other risk assets. Not as much as copper or silver but it absolutely will kind of come under a lot of pressure with everything else you'll probably see a sort of over reach into the dollar only just seem to cash right and then that's probably that is really the load to buy because you know after that cell of the then investors sort of will look at as a classes with with yeah and have a better better deal on where to allocate to but generally it's something that's not going to be a good deal.

28:46But generally it's not all first and then it rises finally you've most likely talked to a lot of people this year about gold and why gold is moved the way that it has you've gotten a lot of questions as well as about why gold has moved relative to other markets what are the biggest misconceptions about gold's behavior. Just from this year's conversations alone biggest misconceptions and gold. Yeah I think it goes back to the question and sort of how we debated is golden inflation hedge is gold does gold rise with inflation you expect gold to ride with rise with inflation I think I'm trying to dissect it really comes down to real rates and whether we're ahead or behind of the inflation curve. And you know that historically has been a clean up sort of drive out gold versus just the fact that you know we've got oil about 100 and diesel at six and CPI XYZ I think so that that's been a common misconception around gold around gold.

29:48Okay great well Nikki thank you for your update where can we go to follow you and learn more from your work. Well you can follow us and everything about M. K. S. Pam but M. K. S. Pam. com and I'm on Twitter under NYX and I have say 84 okay we'll put the links down below thank you Nikki again and we'll speak again soon great thanks David thank you for watching please do like subscribe.