Category: Gold & Commodities

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Tame August CPI But Diesel Hits Record High

Key Points

  • Core CPI ticked lower to an annual rate of 2.4% in August, while headline CPI edged up to 3.4%.
  • However, rising producer prices warn of strong margin pressure that corporations will likely pass on to consumers through price hikes.
  • Energy prices are driving higher inflation, with diesel rising to a record $6 per gallon.
  • Houthi attacks on Saudi Arabia’s East-West Pipeline are expected to drive crude oil prices higher next week.
  • 10-year Treasury yields are testing resistance at 5.0%, while Gold softened to $4,350 per ounce.

Headline CPI edged up to an annual rate of 3.4% in August, while core CPI ticked lower to 2.4%.

CPI & Core CPI - Annual

For the month of August, headline CPI increased 0.40%, in line with expectations, while core CPI’s increase of 0.29% was higher than the expected 0.20%.

CPI & Core CPI - Monthly

CPI remains above the Fed’s target inflation rate of 2.0% but gives little warning of the expected inflation shock ahead.

Producer prices have risen 5.4% over the 12 months to August, warning of strong margin pressure that corporations will likely pass on to consumers through price hikes.

Producer Price Index (PPI)

Finished goods PPI reacts faster to higher energy prices, reaching an annual rate of 6.6% in August. While slower to react, Services PPI is also rising at 4.5%.

Producer Price Index (PPI): Goods & Services

Strong producer price rises are reflected in the ISM Non-Manufacturing (Services) survey. The Prices index climbed to 72.6%, the highest reading since July 2022, and the 21st consecutive month above 60%.

ISM Services Prices

Services Prices tend to lead US CPI inflation by 2 to 6 months, as shown in the longer-term chart below. The current divergence between ISM Non-Manufacturing Prices (blue) and CPI (red) warns of a sharp rise in CPI ahead.

ISM Services Prices

Energy prices are the primary driver of the current CPI spike, as in 2022 when energy prices soared 40% after Russia’s full-scale invasion of Ukraine, followed by a rise in CPI to 9.0%.

CPI & CPI Energy - Annual

Average US gasoline prices rose to $4.16 per gallon in September as crude prices climbed.

EIA US Gasoline Prices

However, distillates are taking the brunt, with average diesel prices rising to a record high of $6.00 per gallon.

EIA US Gasoline Prices

NEW YORK, Sept 10 (Reuters) – The U.S. national average price of diesel on Thursday surpassed $6 a ​gallon for the first time ever, according to price tracker GasBuddy, as the U.S.-Israeli war on Iran and Ukrainian attacks on Russia’s refineries have squeezed supply….

“Every truck, every delivery, every package, every grocery run just got more expensive,” GasBuddy analyst Patrick De Haan said ​on social media site X.

“Record diesel prices will impact every cargo, shipment, every delivery Americans are taking, and are likely to reignite inflation up and down the supply chain,” ​he said.

“In a span of five months, we’ve seen diesel prices more than double. It has rocked our cash flows,” said Alex Ryan, energy director at Kansas-based fuel supplier Oasis Energy. “There’s gotta be a tipping point, I just don’t know when or where it’s going to be,” he said….

U.S. diesel inventories stand ​13% below their five-year ⁠average, the Energy Information Administration said, at 106.3 million barrels. Stocks rose last week as refiners ran plants at full tilt to capture strong margins.

The U.S. diesel crack spread , a measure of refining margins, surged to a record high of $112.17 a barrel on Thursday, LSEG data showed.

U.S. distillate inventories are near multi-decade lows for this time of year, even with refiners operating ⁠at high ​utilization rates, said Linda Giesecke, director of refined products at Rapidan Energy. It will likely be difficult ​to rebuild stockpiles over the next two months as seasonal refinery maintenance gets underway.

Brent crude futures rose to $107 per barrel last week, before retracing late Friday to $104.60, testing new support at $100 per barrel.

Brent Crude Futures (ICE November'26)

Talk of new peace talks is meaningless, but the Trump administration is still able to manipulate oil futures by spamming the media. Iran is likely to increase its attacks on oil transit routes in the Middle East ahead of the November midterms. From Reuters:

“Some headlines of possible new talks in the Middle East are weighing ​moderately on oil prices today,” said UBS energy analyst Giovanni Staunovo. “I keep seeing near-term risks to the upside for oil prices, but we should expect ongoing high price volatility ​too.”

In a further development for Riyadh, satellite imagery showed smoke on Thursday in the vicinity of Saudi Arabia’s East-West Pipeline, vital for the kingdom to divert its crude exports away from Hormuz.

As more reporting said a pumping station on the pipeline had been damaged by Iran-affiliated militants, prices stayed lower.

“It’s surprising the oil market remains down in light of reporting that Houthi rebels attacked the East-West Pipeline, which ​would impact 7 million barrels of crude,” said Andrew Lipow, president of Lipow Oil Associates.

“Repairing a pumping station would require a lot more than repairing a break in the ​pipeline,” Lipow said.

Stocks, Treasuries & Gold

The S&P 500 continues to test short-term support at 7600. A breach would signal a secondary correction to test support at 7000.

S&P 500

The bond market is voting with its feet. 10-year Treasury yields are testing resistance at 5.0% ahead of next week’s FOMC meeting. Many pundits are projecting a rate hike on September 16 because of inflationary pressure. Still, the new Fed Chair Kevin Warsh would have to be really dumb to risk offending President Trump with a rate hike ahead of the midterms.

10-Year Treasury Yield

We expect the Fed to hold off on another rate hike at least until December, but that is likely to cause a strong backlash from the bond market, with the 10-year rising strongly above 5.0%.

We expect Gold to soften as the war in the Persian Gulf continues, testing support at $4,000 per ounce, but remain long-term bullish on its prospects.

Spot Gold

Conclusion

We expect rising energy prices to drive higher inflation over the next six months.

Rising long-term Treasury yields will likely be bearish for stocks.

Gold is expected to soften for another test of support at $4,000 per ounce as the war in the Middle East and crude oil shortages intensify. However, we remain long-term bullish on Gold due to rising fiscal deficits by G7 economies, coupled with strong Gold buying by central banks and private investors, especially in China, as the fiscal outlook deteriorates.

Acknowledgments

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How High Can Gold Rally?

Key Points

  • Gold is rallying to test $5,000 per ounce.
  • The Dollar Index is falling steeply.
  • The new Fed Chair is unlikely to hike rates before the November midterms.
  • But crude oil may spoil the party.

Gold has rallied to $4,635 per ounce and looks set to test resistance at $5,000, but will it have enough momentum to carry further?

Spot Gold

The Gold rally was caused by a dovish FOMC meeting at the end of July. The bond market had expected a Fed rate hike to establish the new Fed Chair’s hawkish credibility. Warsh disappointed, with strong words but no action. The 1-Year Treasury Bill rate broke its 6-month trendline, signaling a shift in expectations.

1-Year Treasury Yield (CNBC)

Also, the Dollar Index broke support, signaling a test of primary support at 97.

Dollar Index

The last steep rally in Gold was after a dovish keynote speech by former Fed Chair Jerome Powell at Jackson Hole on August 22 last year. Gold climbed $2,000 per ounce within 6 months.

Spot Gold & S&P 500 ($INX)

The first divergence between Gold (orange above) and the S&P 500 index (blue) occurred shortly after President Trump’s inauguration, when he launched his tariff onslaught on trading partners. The second massive divergence after Powell’s speech was followed by a sharp fall starting in March 2026 after the attack on Iran forced some countries to sell reserves, including Gold, to provide liquidity. Selling will likely resume only if there is another spike in oil prices.

A breakout of Brent Crude above $100 per barrel would be cause for concern.

Brent Crude Futures (ICE October'26)

Conclusion

We don’t expect the new Fed Chair to hike rates before the November midterms, which should give Gold plenty of time to break resistance at $5,000 per ounce, setting off a fresh advance.

The wild card is crude oil prices. A spike in Brent Crude above $100 per barrel could trigger further selling of Gold reserves by major oil importers to defend their currency, and Gulf states to cover lost export revenues. High energy prices could also force the Fed Chair to hike rates.

We are convinced that Gold will eventually reach $10,000 per ounce, but are unsure whether that will be in one year or ten years. Trends seldom travel in a straight line, as the first half of this year has just reminded us.

Acknowledgments

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Trump Backs Off as SPR Reaches 40-Year Low

Key Points

  • President Trump says the US is backing away from a renewed military offensive and will rely on the blockade of Iran.
  • Iran says the Strait of Hormuz will remain closed.
  • Brent Crude rose to $87.70 per barrel.
  • US Strategic Petroleum Reserves fell below 300 million barrels for the first time in more than forty years.

US President Donald Trump has signaled he’s prepared to let economic pressure take its toll on Iran rather than launching further military strikes, as Tehran insists the Strait of Hormuz will only reopen if Washington agrees to several conditions.

Trump, who last week projected confidence in an imminent deal between Washington and Tehran, told Axios on Sunday that he is prepared to wait for economic distress to mount in Iran, backing away from a renewed military offensive.

“We are low-keying it,” Trump said, “We are only semi-negotiating with them. We are just watching Iran with its huge inflation and the fact they have no money.”

Brent Crude is sneaking up again, with October futures above $87 per barrel. A recovery above $90 would signal another test of $100 per barrel.

Brent Crude Futures (ICE October'26)

NEW DELHI, Aug 11 (Reuters) – Shipping traffic through the Strait of Hormuz fell to six on Monday, compared ​with a 10-day average of about 11 vessels, ‌shipping data showed, amid fading hopes of a peace deal between the US and Iran.

Four commodity vessels, including two empty ​oil product tankers, entered the waterway, according to Kpler data as of 0420 ⁠GMT on Tuesday. Two vessels — a small tanker laden with ​liquefied petroleum gas and another carrying residual fuels — exited ​the Strait, the data showed.

In pre-war days, about 130 to 140 ships typically transited the strait.

It is unclear how long the Trump administration will manage to keep a lid on crude oil prices.

Kieran Tompkins, senior climate and commodities economist at Capital Economics, said the relatively “low” level of oil prices reflects that investors have continued to factor in two opposing scenarios — a quick and imminent resumption in energy flows, and a prolonged Hormuz closure….

“If the strait remains closed and oil inventories in OECD countries continue to be depleted quickly, the oil market could reach a tipping point around the start of Q4. This would be consistent with much higher prices, possibly in the region of $120-140 per barrel based on historical form.”

….China “singlehandedly balanced the market in May with its cut-back in [oil] imports,” Amrita Sen, founder and director of research at consultancy Energy Aspects, told CNBC’s “Morning Call” on Friday. However, with Chinese crude imports recovering in July and set to rise further in August, Sen warned that “crude can’t stay down forever.” (CNBC)

Strategic petroleum reserves in the US are falling, with the SPR below 300 million barrels for the first time in more than forty years.

EIA Strategic Petroleum reserve (SPR)

Crude oil stockpiles in the U.S. Strategic Petroleum Reserve have fallen below 300 million barrels, the lowest level in more than four decades, as global inventories stay under pressure due to the Iran war.

The SPR fell by 6.1 million barrels to 298.7 million barrels last week, according to data released by the Department of Energy on Monday. The reserve, created in 1975, is at its lowest level since January 1983.

President Donald Trump ordered the release of 172 million barrels in March after Iran choked off oil exports through the Strait of Hormuz, triggering the largest disruption of crude oil supplies in history.

The drawdown in the SPR, whose authorized storage capacity is 714 million barrels, has raised questions about whether U.S. government stockpiles are on the verge of depletion. The minimum amount of oil needed to safely operate the SPR is about 70 million barrels, an Energy Department spokesperson told CNBC in July.

There is enough oil left in the SPR to do another release if needed, said David Goldwyn, who served as a State Department special envoy for international energy affairs under President Barack Obama.

“I’m not worried about the stability of the reserve or our ability to do another drawdown, if we needed to,” Goldwyn told CNBC.

The SPR may have capacity for one more draw, but no more.

The SPR’s operational capability is at risk due to aging infrastructure, according to a May report from the Government Accountability Office. More than a quarter of its inventory was “not available for drawdown due to a combination of construction outages and cavern outages” as of December 2025, GAO investigators found. (CNBC)

Conclusion

President Trump is backing away from forcing through a peace deal before the November midterms. Iran will likely endeavor to make the interim as uncomfortable as possible for the US, closing the Strait and attacking US allies and bases in the Middle East. We expect Iran to go after the UAE’s Fujairah pipeline, which bypasses the Strait of Hormuz. An attack that closes the pipeline would remove another 5 to 6 million barrels per day of crude oil from global supply.

UAE Fujairah Pipeline

US Strategic Petroleum Reserves will likely last until November, but low levels are bound to raise prices as refiners attempt to lock in supplies ahead of production runs.

Acknowledgments

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Weak Dollar Boosts Gold & Copper

Key Points

  • Gold is testing resistance at $4,250 per ounce.
  • Copper (COMEX September futures) jumped to $6.72/lb.
  • US Treasury intervention in the Japanese Yen has rattled bond market investors.
  • The ISM Services PMI signals expansion, but signals weak job growth and strong inflationary pressures.

Gold rallied to test resistance at $4,250 per ounce. A breakout would signal another test of $5,000.

Spot Gold

Copper jumped to $6.72/lb on the COMEX futures exchange (Sep’26), continuing its long-term uptrend.

CNBC: Copper

The Dollar softened after last week’s joint intervention by Japan’s Ministry of Finance (MoF) and the US Treasury to support the Yen. Bond market traders are questioning why the US Treasury was involved and not the G7. Coordinated action by G7 central banks has supported past interventions. This time, the G7 were not involved, and the conclusion is that the US Treasury was acting to protect its Treasury market. The US Treasury repo operations circumvented the MoF being forced to sell US Treasuries to support the Yen, a move that would have driven up yields. (Reuters)

Dollar Index

Stocks & Financial Markets

Bitcoin1 continues to consolidate in a narrow range above 60000, a bearish sign in a downtrend. A breakout above 65000 would signal that financial market risk aversion is easing, while a break below 60000 would warn of a major liquidity contraction.

Bitcoin (BTC)

Dow Jones Industrial Average broke out above 53000, and is headed for a test of 55000. Trend Index troughs above the zero line confirm buying pressure.

Dow Jones Industrial Average

ISM Services

The ISM Services PMI increased to 54.1% for July, signaling a broad economic expansion.

ISM Services PMI

However, the Employment index fell to 47.4%, warning of weak job growth ahead.

ISM Services Employment

Services Prices also increased to 70.3%, a level similar to Manufacturing, signaling strong inflationary pressures.

ISM Services Prices

Conclusion

US Treasury operations to assist Japan’s intervention in support of the Yen underscore the fragility of US Treasury markets. The move fueled a rally in Gold and Copper, as well as the Dow, as confidence in US Treasury markets was shaken.

The ISM Services PMI signals continued expansion, but warns of weak job growth and strong inflationary pressures.

Acknowledgments

Notes

  1. Cryptocurrencies are the highest-risk asset class, and we analyze Bitcoin (BTC) solely to identify risk sentiment in financial markets. Our analysis is not a recommendation to buy or sell BTC, nor is it a commentary on the merits of cryptocurrency.
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Strategic Petroleum Reserve (SPR)

Crude oil futures are being manipulated by White House spin about an imminent “peace deal” whenever Brent reaches $100 per barrel.

Brent Crude Futures (ICE October'26)

However, the Strategic Petroleum Reserve (SPR) is declining at a rate of 1 million barrels/day as the government draws from the reserves to offset the shortage.

EIA Strategic Petroleum reserve (SPR)

Conclusion

Acknowledgments

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4 Key Takeaways for the Week

Key Points

  • Long-term Treasury yields climbed after the Fed kept rates unchanged.
  • The Japanese Yen is weakening as the Bank of Japan slow walks rate hikes.
  • Gold absorbs selling pressure as long-term rates rise.
  • China’s economy is slowing.

Treasury Market

The bond market has been anticipating a rate hike. This has been signaled since the 2-year Treasury yield broke above the Fed funds target range in March 2026.

2-Year Treasury Yield & Fed Funds Target (Upper Limit)

The FOMC voted to keep the Fed funds rate unchanged, with a target range of 3.5% to 3.75%. There were 3 dissenting votes, calling for a rate hike. The new Fed Chair, Kevin Warsh, is encouraging opposing views, and we can expect more dissent in the future. Warsh has also avoided forward guidance, which is likely to increase volatility in the bond market and consequently the term premium.

10-year Treasury yields climbed to 4.745% on Friday, reflecting market concern that the FOMC is not taking a more hawkish stance on inflation.

10-Year Treasury Yield

GDP grew at 6.5% over the 12 months to June, suggesting that the 10-year yield needs to rise by at least 175 basis points if the Fed is serious about containing inflation. Long-term interest rates below nominal GDP growth (the rate of return on new capital investment) encourage rapid credit growth, with demand expanding faster than output.

10-Year Treasury Yield & Nominal GDP Growth

Japan & the Sovereign Bond Market

Japan’s GDP grew by 3.6% over the 12 months to March 2026. The 10-year JGB yield is 2.8%, indicating that monetary policy remains stimulative, but less so than the US.

10-Year Treasury Yield & Nominal GDP Growth

The Bank of Japan kept its policy rate at 1.0% at last week’s meeting despite an upturn in CPI to 1.7%. The weakening Yen drives higher inflation.

Japanese CPI Inflation

The low BOJ policy rate and ongoing bond purchases aimed at suppressing long-term JGB yields undermine the currency. The Yen has steadily weakened, breaking above 160 against the Dollar in June 2026 to reach its highest level in 39 years. Japan’s Ministry of Finance intervened on Thursday to support the Yen, driving the exchange rate to 157 against the Dollar. However, the effect of these MoF interventions is short-lived because of BoJ policy.

Japanese Yen

Rising long-term yields in sovereign bond markets reflect growing concern over sovereign debt levels and the risk of fiscal dominance. When central bank policy is dominated by government bond markets’ need for support, with lower interest rates prioritized above containing inflation, the currency’s purchasing power is eroded, as in Japan.

The US 30-year Treasury yield has climbed to 5.275%, reflecting concerns over currency debasement.

30-Year Treasury Yield

The Japanese JGB yield is lower at 3.98%, but this reflects sizable ongoing QE by the Bank of Japan aimed at suppressing long-term rates.

30-Year JGB Yield

The Bank of Japan has higher debt levels relative to GDP than the UK and should theoretically trade at a higher yield. The difference in the 30-year Gilt yield lies in central bank monetary policy: the Bank of England is steadily shrinking its balance sheet, while the BoJ is actively buying JGBs in the secondary market to suppress yields.

30-Year UK Gilts Yield

Dollar & Gold

Rising short-term yields are strengthening the Dollar, with the 1-Year Treasury yield gaining more than 50 basis points in the last 6 months.

1-Year Treasury Yield (CNBC)

Gold has softened considerably from its peak of $5,500 per ounce and has been testing primary support at $4,000 over the past 8 weeks.

Spot Gold

Gold ETF inflows slowed in the first half of 2026 but remained positive, driven by continued inflows into Asian funds. North America experienced an outflow of $7.7 billion, European inflows slowed to $3.2 billion, while Asia recorded a strong inflow of $12 billion.

Gold ETF Flows

Average daily trading volumes surged to a record $488 billion in the first half of 2026.

Gold Average Daily Trading Volumes

OTC trading, led by the LBMA, averaged US$249bn/day, substantially above 2025 levels and underscoring the depth of institutional participation. Exchange-traded volumes also jumped, reaching US$227bn/day – 22% higher than the 2025 average – supported by elevated investor activity. Meanwhile, global Gold ETF trading averaged US$12bn/day – up 73% from 2025 – fueled primarily by robust trading in US funds as investors increasingly turned to Gold amid heightened macroeconomic and geopolitical uncertainty.

Comex futures net longs increased to 538 tonnes, up 16% since May, and the highest month-end level since January despite a weakening gold price. A closer look shows retail participation (non-reportable net longs declined in June, while other reportables, which capture large trades outside the managed money category, were up 16% from May. Managed money net longs remained broadly stable, declining by just 43 tonnes year-to-date. Again, H1 investor behavior differed: retail positioning largely tracked short-term price movements while larger traders’ positions have, in general, stayed stable since mid-March. (WGC)

Comex contracts standing for delivery jumped to 13,123 in July from 8,838 in May, and a 9.0% increase over July last year.

Spot Gold

China

The Chinese NBS Manufacturing PMI fell to 49.2 in July, down sharply from 50.3 in June. Values below 50 indicate a contraction in the manufacturing sector.

China: NBS Manufacturing PMI

The OECD Composite Leading Indicator for China fell to 98.6 in June, below its long-term average of 100, signaling a contraction.

OECD: China Composite Leading Indicator

The RBA’s activity indicators for China show industrial production is holding up, boosted by record exports. However, real retail sales growth has stalled, while fixed asset investment has contracted sharply following Trump’s tariff blitz last year.

OECD: China Activity Indicators

Household credit growth (purple below) has also stalled. Business credit has taken up the slack, but government credit growth is also contracting.

OECD: China Total Social Financing

Conclusion

10-year US Treasury yields jumped to 4.745% after the Fed kept its funds target range at 3.5%-3.75%, reflecting bond market concerns over inflation.

The new Fed Chair’s strategy is to keep short-term rates low and allow long-term rates to rise, to slow the rate of demand growth in the economy and curb inflation. However, nominal GDP is growing at an annual rate of 6.5%, which means that 10-year Treasury yields would need to rise by 175 basis points to keep inflation in check. An increase to 6.5% would likely cause a sharp contraction in stocks.

Japan’s Ministry of Finance has intervened to support the Yen. However, the effects will likely be short-lived, as the Bank of Japan continues to maintain stimulative monetary policy, which fuels inflation and undermines the currency.

Rising long-term sovereign debt yields reflect bond market concerns over rising sovereign debt and the risk of fiscal dominance, as in Japan, where the central bank has prioritized maintaining an orderly bond market above price stability. Erosion of the currency purchasing power is the inevitable outcome.

Gold has found strong support at $4,000 per ounce, with long-term investors prepared to wait out the turmoil in the Middle East. Demand from Asian investors has been particularly strong, but could be undermined if China goes into recession.

China’s economy shows increasing signs of contraction, precipitated by a decline in business investment following President Trump’s 2025 tariff attack. Household credit and real retail sales have stalled, and the NBS Manufacturing PMI fell to 49.2, signaling a contraction. Higher fuel prices would be an added headwind that could tip the economy into recession.

Acknowledgments

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Global Oil Shortage – This Time It’s Different

Key Points

  • We are on the 10th day of a hot war in the Persian Gulf.
  • The Memorandum of Understanding is a distant memory.
  • Tanker traffic in the Strait of Hormuz has died.
  • Brent Crude futures rebounded to above $90.00 per barrel.
  • What is different is that China is not cutting oil imports like last time.

Tehran and Washington are doubling down on their standoff over the Strait of Hormuz, as a Red Sea blockade risks shutting another key shipping route amid an expanding war. Days of U.S. strikes have not loosened Tehran’s chokehold over the Strait of Hormuz, a vital corridor for the world’s oil supply, while tit-for-tat strikes have taken the place of a collapsed ceasefire. A tanker came under attack in the strait early Tuesday, near Oman, forcing the crew to abandon the ship on a lifeboat, the British navy’s maritime trade operations center said. Iran said fires broke out on two tankers that passed through an unauthorized route. (Washington Post)

Brent Crude futures have rebounded to above $90 per barrel.

Brent Crude Futures (ICE September'26)

Crude oil tanker traffic through the Strait of Hormuz has come to a halt.

Strait of Hormuz Tanker Traffic

Strategic Petroleum Reserves have fallen by 100 million barrels since the start of the war.

EIA Strategic Petroleum reserve (SPR)

The drawdown of reserves helped to keep a lid on oil prices, but the biggest contributor to low prices was the sharp fall in Chinese oil imports from 12 million barrels/day in March to 5 million barrels/day in early July. This enabled a recovery of imports by the rest of Asia.

Asian Crude Oil Imports

What is different this time is a sharp rebound in Chinese imports. If China resumes imports of 10 to 12 million barrels/day, then global demand has to shrink by 5 to 7 million barrels/day, which would likely trigger a global recession.

China Crude Oil Imports

Gasoline prices in the US are back above $4.00 per gallon.

EIA US Gasoline Prices

Refiners’ margins have widened, likely a result of falling inventories of finished product. The 3-2-1 crack spread increased to $68.17 per barrel, above its 2022 peak at $60 per barrel.

Energy Channel: 3-2-1 Crack Spread

10-year Treasury yields climbed to 4.63%, with rising inflation expectations driving yields higher.

10-Year Treasury Yield

The University of Michigan survey of 1-year inflation expectations averaged 4.2% in July, with the 3-month moving average at 4.5%.

University of Michigan: 1-Year Inflation Expectations

2-year Treasury yields anticipate rate hikes ahead, testing resistance at 4.25%, 50 basis points above the Fed funds target range of 3.5% to 3.75%.

2-Year Treasury Yield (CNBC)

Bitcoin1, the canary in the coal mine, continues to test primary support at 60,000. A breach of support would warn of a sharp contraction in financial market liquidity.

Bitcoin (BTC)

However, the S&P 500 is consolidating in a bullish narrow triangle below 7600. Declining Trend Index peaks above zero indicate secondary selling pressure, and a breakout above 7600 would offer a target of 8000.

S&P 500

Gold is consolidating in a narrow rectangle above primary support at $4,000 per ounce. A breakout above $4,200 would signal respect of support, with an initial rally to $4,500.

Spot Gold

Conclusion

Ongoing conflict and restricted tanker traffic through the Strait of Hormuz will likely drive Brent Crude above $100/barrel. A resumption of Chinese crude imports at above 10 million barrels/day would drive Brent towards $150/barrel.

Interest rates are rising in anticipation of higher inflation, but the S&P 500 is testing resistance at 7600, and Gold is consolidating above $4,000 per ounce. A sharp rise in oil prices and inflation would be bearish for both in the short-term, but a divergence between interest rates and inflation would be a strong bull signal. Suppression of long-term Treasury yields, through Fed QE or other means, would drive real interest rates below zero, fueling a massive speculative boom in real assets.

Acknowledgments

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War, Inflation & Gold to the Moon

Key Points

  • The war in the Persian Gulf is hotting up, with both sides trading missile strikes and threatening to blockade shipping.
  • Brent Crude rose to $85.40 per barrel.
  • Crude and finished product inventories are declining, increasing upward pressure on gasoline and diesel prices.
  • Interest rates are rising in expectation of higher inflation.
  • The Dollar is rising in expectation of higher rates.
  • Gold and commodities face increased selling pressure as the Dollar strengthens.

DUBAI/WASHINGTON/CAIRO, July 13 (Reuters) – The U.S. military carried out a third consecutive night of strikes against Iran on Monday and two tankers came under ​fire in the Strait of Hormuz, after President Donald Trump said the United States was reinstating its blockade of Iranian shipping in the Gulf and would ensure that the strategic waterway stayed open — for a fee.

….Soon after, the United Arab Emirates Ministry of Defense said Iranian cruise missiles struck two Emirati oil tankers, the Mombasa and Al Bahiyah, while transiting the southern lane of the strait in Omani territorial waters, killing one crew member and injuring eight others.

The ​United Kingdom Maritime Trade Operations agency said a tanker had been hit by an unknown projectile while traveling 40 nautical miles northeast of Oman’s Qalhat and that all crew were safe.

“The Hormuz Strait is OPEN, and will remain OPEN, with or ⁠without Iran. We are reinstating THE IRANIAN BLOCKADE,” Trump had said earlier on Monday on Truth Social.
“The U.S.A. will be, from this point forward, known as ‘THE GUARDIAN OF THE HORMUZ STRAIT’, but as such, and as a matter of FAIRNESS, will be reimbursed, ​at the rate of 20% on all cargo shipped.”

….The UN’s shipping agency pushed back against Trump’s proposal, saying it opposes any fees for straits used in international navigation and stressing that there is no legal basis for introducing mandatory tolls on strait transits.

….Iran’s state TV cited the Iranian army as saying that it targeted a “hostile” U.S. vessel with cruise missiles and U.S. facilities and equipment in ​Kuwait with drones. Iranian media also said the Revolutionary Guards shot down a U.S. MQ-1 drone over Hormuz, while sirens sounded early on Tuesday in Bahrain – home to another U.S. military base.

Brent Crude (September futures) jumped to $85.40 per barrel.

Brent Crude Futures (ICE September'26)

The Strategic Petroleum Reserve (SPR) fell to 319.5 million barrels on July 3, a decline of 6 million barrels for the week.

EIA Strategic Petroleum reserve (SPR)

Overall crude stocks, including SPR, declined to 1.517 billion barrels, the lowest level in 23 years.

EIA Crude & Petroleum Products Inventories (incl. SPR)

Stocks of Gasoline (blue) and Diesel (brown) are close to their floor of 200 million barrels and 100 million barrels, respectively.

EIA US Gasoline & Distillate Inventory

Gasoline prices declined to a US average of $3.777 per gallon by July 6.

EIA US Gasoline Prices

Diesel prices also softened to $4.578 per gallon.

EIA US Diesel Prices

However, the 3-2-1 crack spread3 widened to $62.17 per barrel, indicating that refiners are taking advantage of low finished product inventories to widen their margins. However, there is speculation that crude futures prices are being distorted, and refiners are paying more than the quoted price per barrel to secure supplies.

Energy Channel: 3-2-1 Crack Spread

The Dow Jones Industrial Average is tentative, with three red candles over the past five days, and a fall below 52,000 would signal a correction.

Dow Jones Industrial Average

Financial Markets

2-year Treasury yields jumped to 4.29%, more than 50 basis points above the target range for the Fed funds rate. Financial markets are anticipating higher crude prices to increase inflationary pressure, forcing the Fed to raise rates.

2-Year Treasury Yield (CNBC)

The Chicago Fed National Financial Conditions Index continues its downtrend, indicating ample liquidity in financial markets.

Chicago Fed National Financial Conditions Index

However, Bitcoin1 is testing primary support at 60,000, warning that financial markets are becoming risk averse. A fall below support would warn of a sharp contraction in liquidity in financial markets.

Bitcoin (BTC)

Treasury Markets

10-year Treasury yields jumped to above 4.6% in anticipation of higher inflation and higher interest rates. A breakout above 4.7% would offer a target of 5.0% — a third rail for the economy.

10-Year Treasury Yield

Dollar & Gold

The Dollar Index rallied in expectation of higher interest rates.

Dollar Index

The stronger Dollar triggered another Gold test of primary support at $4,000 per ounce. However, rising Trend Index troughs below zero indicate buying pressure at the support level.

Spot Gold

Energy Transition

The strong Dollar is also causing a sell-off in energy transition metals.

Sprott Uranium Miners ETF2 (URNM) is testing primary support at 50. Declining Trend Index peaks below zero warn of strong selling pressure.

Sprott Uranium Miners ETF (URNM)

Sprott Copper Miners ETF2 (COPP) crossed below its 50-week moving average, indicating another test of primary support at 32.

Sprott Copper Miners ETF (COPP)

Sprott Lithium Miners ETF2 (LITP) is testing primary support at 11.

Sprott Lithium Miners ETF (LITP)

Sprott Critical Materials ETF2 (SETM) has broken primary support at 30. A follow-through below the previous week’s low would confirm a target of 20.

Sprott Critical Materials ETF (SETM)

Conclusion

We expect a steep rise in crude prices. Lower inventory levels indicate there are fewer reserves to cushion the impact of a supply shortage. Falling gasoline and diesel inventories warn of a sharp price rise ahead.

Interest rates are rising in anticipation of higher inflation, fueled by energy prices, which in turn increases support for the Dollar.

The strong Dollar increases selling pressure on precious metals and commodities such as uranium, copper, lithium, and critical minerals.

High inflation may reduce speculative demand for Gold in the short-term because of the likely increased carrying cost, but it increases investment demand for the metal as an inflation hedge. What will light the afterburners, however, is if the Fed suppresses interest rates to support the Treasury market.

Chinese demand is the largest driver of Gold prices in the long term, and low prices will likely trigger an increase in buying, both through official channels and via backdoor non-monetary Gold purchases.

Acknowledgments

Notes

  1. Cryptocurrencies are the highest-risk asset class, and we analyze Bitcoin (BTC) solely to identify risk sentiment in financial markets. Our analysis is not a recommendation to buy or sell BTC, nor is it a commentary on the merits of cryptocurrency.
  2. We analyze exchange-traded funds (ETFs) to determine market sentiment towards a specific sector, industry, or commodity. The analysis is not a recommendation to buy or sell, nor is it a commentary on the merits of the particular ETF.
  3. The 3-2-1 crack spread is calculated by subtracting the price of 3 barrels of crude from the sum of 2 barrels of gasoline and 1 barrel of diesel. The result is then divided by 3 to reflect the refiner’s gross profit per barrel of crude.
Posted on

The Oil Crisis is Not Over Yet

Key Points

  • Iran fires missiles at shipping in the Strait of Hormuz.
  • Brent Crude futures (Sep’26) hardly moved.

July 6 (Reuters) – Iran’s Revolutionary Guards fired at least two missiles at commercial ships transiting through the Strait of Hormuz on Monday night, Axios reported, citing two U.S. officials.

Two commercial ships suffered significant damage but had no casualties, the report said, citing a U.S. official.

Separately, Britain’s maritime security agency said a ​tanker caught fire after being hit by an unknown projectile east of Oman’s Limah early on Tuesday.

The United Kingdom Maritime ​Trade Operations agency (UKMTO) said early on Tuesday that the tanker was struck on its port side while ⁠travelling southbound about 8 nautical miles (15 km) east of Limah, causing a fire. No casualties or environmental impact had been reported.

….Iran’s Revolutionary Guards warned ships via maritime radio over the weekend that “our missiles and drones are ready to fire at you,” the Wall Street Journal reported on Monday, quoting from a recording ​it obtained.

Brent Crude (September ’26 Futures) remains close to $70 per barrel.

Brent Crude Futures (ICE September'26)

Crude inventories are falling steeply as the US releases oil from reserves to keep prices low. The EIA chart below shows US crude & petroleum inventories, including strategic (SPR) reserves, fell to 1.53 billion barrels.

EIA Crude & Petroleum Products Inventories (incl. SPR)

However, low prices are not reaching the gas pump. 3-2-1 crack spreads at close to $60 per barrel indicate that refiners have increased their profit margins rather than passing on cost savings to consumers.

Energy Channel: 3-2-1 Crack Spread

Conclusion

There is no final peace deal in sight. Crude oil supplies remain under threat.

The Iranian Revolutionary Guards are attempting to establish control over shipping through the Strait of Hormuz. They see closing the Strait as their best means of deterring future attacks from the US and Israel. However, its potency as a negotiating tool will diminish after the November midterms.

Acknowledgments

Notes

  1. Cryptocurrencies are the highest-risk asset class, and we analyze Bitcoin (BTC) solely to identify risk sentiment in financial markets. Our analysis is not a recommendation to buy or sell BTC, nor is it a commentary on the merits of cryptocurrency.
Posted on

Brent Flat, Bitcoin & Gold Sink Again

Key Points

  • Brent Crude tests support at $70 per barrel.
  • Gold tests support at $4,000 per ounce.
  • The Dow closes at a new high.
  • Bitcoin breaches support at 60,000, signaling risk-off across financial markets.

Brent Crude prices remain flat at close to $70 per barrel despite on-again/off-again peace talks.

Brent Crude

We are entering the summer driving season in the US, when demand for gasoline peaks. Gasoline prices will likely remain high as refiners enjoy wide profit margins, with the 3-2-1 crack spread2 above $60 per barrel for the first time since Russia’s invasion of Ukraine in 2022.

Energy Channel: 3-2-1 Crack Spread

Bitcoin1 broke primary support at 60,000. Expect retracement to test the new resistance level, but respect will likely confirm another decline. Falling Bitcoin prices signal a market-wide shift to risk-off.

Bitcoin (BTC)

However, the Dow Jones Industrial Average closed at a new high. The replacement of Verizon (VZ) in the Average with Alphabet (GOOGL) on June 29 may have something to do with this.

Dow Jones Industrial Average

The S&P 500 also rallied, testing resistance at 7500. A follow-through above the recent high would offer a target of 8000.

S&P 500

Dollar & Gold

The Dollar retreated slightly, but all eyes are on the Japanese Yen, which weakened to its lowest point against the Dollar in more than 40 years. Expected intervention by Japan’s Ministry of Finance would temporarily strengthen the Yen but would be self-defeating, as it would increase selling pressure in Japan’s bond market. Rising bond yields force the Bank of Japan to intervene by buying bonds. That weakens the Yen and negates the MOF’s earlier move.

Japanese Yen

This is a difficult trap to escape from. If the BOJ raised its policy rate from the current low of 1.0%, it would strengthen the Yen but increase upward pressure on bond yields, forcing the Bank to buy more bonds, thereby weakening the Yen.

Gold is testing primary support at $4,000 per ounce again, with declining Trend Index peaks warning of secondary selling pressure.

Spot Gold

Plunging open interest on Comex Gold futures indicates that speculators are losing interest in the precious metal.

Gold Futures Open Interest

However, one major player is buying the dip. Bloomberg reports:

Imports were around 163 tons last month, the highest since March 2024, according to customs data released on Saturday. Volumes for the first five months of 2026 were about 692 tons, up by about 76% from a year earlier.

China: Nonmonetary Gold Imports

Conclusion

We expect Brent Crude to remain around $70 per barrel, provided there is no interruption to shipping in the Strait of Hormuz. This eases inflation expectations, but existing pressures persist and prevent the Fed from cutting rates.

Stocks remain bullish, but Bitcoin warns of rising risk aversion.

Gold will likely remain under pressure while negotiations with Iran continue, but China has increased its imports of nonmonetary Gold, buying the dip. We expect the uptrend in Gold to continue for decades, interspersed with regular sell-offs like the present, curbing speculators’ enthusiasm and enabling long-term players to build their positions.

Acknowledgments

Notes

    1. Cryptocurrencies are the highest-risk asset class, and we analyze Bitcoin (BTC) solely to identify risk sentiment in financial markets. Our analysis is not a recommendation to buy or sell BTC, nor is it a commentary on the merits of cryptocurrency.
    2. The 3-2-1 crack spread is calculated on the theoretical refining margin if a barrel of oil is split 2:1 between gasoline and diesel. A spread of $60 indicates that refiners’ margins would have tripled from $20 in January 2026.
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