We have already been seeing de-globalisation, with more and more countries and regions wanting to become more self-sufficient when it comes to critical metals. The Iran war and its knock-on effects — above all on oil — have now exposed further risks of being dependent on the rest of the world. Once again, countries will need to take stock of where they stand, this time on energy supply as well. We expect even larger investments in nuclear power and electrification in the years ahead.
Sharply higher oil prices and supply disruptions are putting the world under strain, and will force countries to act if they continue. Rationing, and stimulus to offset the slowdown in consumption that follows higher gasoline and diesel prices, look likely. It is precisely this stimulus and money printing that will give gold and silver prices a tailwind once the market truly grasps what is happening.
During the 1970s, the United States built a world order that came to be known as the Petrodollar. It rested on the U.S. dollar’s status as the world’s reserve currency and on an agreement with Saudi Arabia to supply oil — with the further understanding that all oil trade worldwide would be settled in USD. Any country that tried to break out of this system was quickly subjected to American “measures.”
Today, the U.S. has itself become a major oil producer, and its dependence on Saudi Arabia has accordingly diminished. During the Iran war, Washington has not focused on protecting the oil-producing countries, and these countries now feel let down compared with what they had been led to expect under their arrangement with the U.S. and the Petrodollar.
The Petrodollar is now cracking, with more and more countries trading oil in currencies other than the dollar. The short-term gains for the U.S. are likely to lead to far greater losses down the road. The privilege of having oil-producing countries sell oil in dollars and recycle the proceeds into U.S. Treasuries is over. Who is now going to finance America’s enormous budget deficit and debt? The U.S. itself — through the Fed’s printing press.
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President Trump’s rate cuts are also drawing closer, even if many in the market would like to believe otherwise. The new Fed Chair is now bringing a refined view of how to read inflation — “trimmed mean inflation”. This approach strips out both the highest- and lowest-impact items when measuring inflation. Once again, calculations are done in a different way to provide a new basis for future rate decisions.
So we are not looking at higher rates because of inflation, but rather lower rates designed to counter all the negative effects of oil prices — by leaving oil-price moves out of the inflation measure. We now hope the war can soon be brought to a complete end, and that all the measures from central banks and governments can finally get under way. We are ready — buckle up.
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