Stewart Thomson, a retired Merrill Lynch broker who writes the Graceland Updates newsletter, examines the interplay between global government debt, oil supply disruptions, and gold's trajectory in his latest commentary published on GoldSeek.

Global Debt and Fiat's Long-Term Decline

Thomson characterizes the global government landscape as defined by debt, extortion, and what he terms "fiat-oriented bravado." He argues that the long-term depreciation of fiat currencies against gold is undeniable, with oil potentially driving the next major leg of that decline.

The Iran War and Oil Supply

According to Thomson, the Iran war has produced an oil supply shortage that has been mitigated so far by significant releases from global Strategic Petroleum Reserves (SPRs). At the current rate of drawdowns, he estimates the US SPR will reach critical levels within three to four months. The US SPR, which peaked above 700 million barrels in 2010, has already been drawn to levels not seen since the early 1980s following unprecedented emergency releases in 2022 and 2023.

Thomson outlines three possible scenarios:

Scenario 1 — Major Resumption of War: Iranian oil infrastructure is destroyed by the United States, and Iran retaliates against neighboring countries' oil infrastructure. Under this scenario, Thomson suggests oil prices would surge back toward the $120 area or beyond, the US stock market would collapse, the Federal Reserve would execute an emergency rate cut, and gold prices would rise sharply.

Scenario 2 — No War Resumption, No Hormuz Opening: With limited or no resumption of hostilities but no opening of the Strait of Hormuz, the US SPR would reach red-alert levels by year-end, forcing an end to drawdowns. Oil prices would rise toward $120, though at a slower pace. The stock market would also decline, the Fed would still cut rates, and gold would appreciate, but more gradually. The Strait of Hormuz, through which roughly a fifth of global daily oil consumption transits, remains a focal point for energy markets monitoring geopolitical risk.

Scenario 3 — War Ends, Hormuz Opens with Tolls: The conflict concludes and the Strait of Hormuz reopens, but with tolls. These tolls would contribute to inflation and eventually pressure the stock market downward, though more slowly, as inflation-affected consumers would take time to significantly reduce spending.

Gold's Current Position

Thomson identifies gold as being in a significant accumulation zone at current levels, regardless of which scenario unfolds. He points to $4,000 as a key psychological level and highlights the $3,900–$4,100 range as important support.

He dismisses mainstream media speculation about potential Fed rate hikes affecting gold, noting that rates rose from near zero to 5% without materially impacting the metal. Thomson argues that higher rates primarily harm heavily indebted entities rather than gold itself.

Japan and Currency Dynamics

Thomson observes that the Bank of Japan (BOJ) declined to raise rates because even 2% rates would create difficulties for Japan's debt-laden government. He suggests the US Treasury is concerned that the BOJ might sell American Treasuries to support the yen. Japan is the largest foreign holder of US government debt, with Treasury Department data placing its holdings above $1 trillion, making any significant reduction in those positions a potential factor for bond market liquidity.

In currency markets, Thomson notes that the yen has declined significantly against the dollar, while the dollar has declined even more against gold — a trend he expects to continue.

Technical Outlook

On weekly charts, Thomson describes gold's current consolidation as a large flag-like rectangle pattern, with a potential breakout target near $9,000. He identifies government debt as the most significant potential catalyst, with oil as another factor of note.

Regarding silver, Thomson points to three downward waves within the overall consolidation, each ending at what he considers key accumulation zones. He suggests the $40–$60 price area may represent one of the most significant buy zones in market history.

For gold miners, as tracked by the GDX ETF — the VanEck Gold Miners ETF, which holds major gold and silver mining companies — Thomson notes the $70 support level corresponds with gold at $4,000. He highlights that Stochastics indicators are at their most oversold reading in three years.

Disclaimer

Stewart Thomson states he is no longer an investment advisor. The information provided by Stewart and Graceland Updates is for general information purposes only. Before taking any action on any investment, it is imperative to consult with multiple properly licensed, experienced, and qualified investment advisors and obtain numerous opinions. The minimum risk on any investment is a 100% loss of all capital. Investors may unknowingly hold leveraged positions, exposing themselves to unlimited risks, which is particularly concerning for those invested in derivatives products. There is an estimated $700 trillion in over-the-counter (OTC) derivatives, with only a small portion officially written off.

Source: GoldSeek