Goldman warned on Sunday to institutional clients that oil could surge between $120 to $150 if Iran disrupts the Strait of Hormuz. Current prices already include about $10 in risk premium. While markets see this as temporary, as evidence from the move, some analysts say resolution won’t come easily. Meanwhile, gold is holding firm even as the dollar strengthens, signaling deeper stress beneath the surface. Welcome to the Morning Markets and Metals with Vince Lancey. Where each morning Vince brings you the financial and precious metals news to get you ready for your day. And now, here’s Vince.

Good morning everyone. I’m Vince Lancey. This is the Gold Fits. It’s 8.06 Monday morning and we have some things to talk about. There’s the homepage. There are five stories there. We’re going to bunch them all together and discuss individually for them quickly and then give you something to wrap it all around. Wrap all around it. The topic gold and oil in the wake of the Iran escalation. Again, we have four pieces from the weekend that we did that we’d like to draw your attention to on this topic. Then a comment about what we think will actually happen to oil and gold with some past commentary about what’s happened almost every other time there was an escalation to de-escalate in the Middle East.

But first, let’s look at the markets. $10 to down one. The dollar is $99.23 up 46. The SP500 is $59.61 down 13. The VIX is $21.46, $48. Gold is up six. Was up 10 to 15. Backed off to down five and now up six. Silver 36, 14, up 12. Unchanged to up 20 was basically the range. Copper offered unchanged. WTI up 15. Was up a couple bucks. Then down a little bit and now basically unchanged bid. Natural gas 382, unchanged offered. Bitcoin 101 of 200 did recover about $1,000, but nothing excited. Let’s put it that way.

It’s acting like a stock right now. Palladium, platinum were down, under open, and now they’re up. And the metals behaviorally all make sense. Gold and silver. Gold and silver has a spread, offered unchanged. Grains are all down with the corn down the most. Down five cents at 432 over percent. Over the weekend, we did several pieces all related to the Iran-Israel-U.S. situation. Just to recap, if you’re not familiar with it on Friday, we dropped some big bombs on a nuclear facility that may or may not be important. A couple of facilities. Iran threatened retaliation.

Israel said it’s not going to slow them down and at the same time offered to have a discussion with Iran if they wanted to cry uncle. Russia said, we don’t like this, but we’re not going to be anti-Israel because there are two million Soviets, former Soviets, that are now in Israel. So when you put it all together, you have an escalation to de-escalate. That’s how I would call it. Bomb goes in. The U.S. steps into the hockey fight and lets its presence be known, but after a lot longer than usual. Let this presence be known.

Everyone backs off and says, oh, the big guys here. And so now they have a discussion. So the bombing was a message, opinion. The bombing was a message to Israel. Give them a chance to cry uncle. We’ll be the bad cop. You can be the good cop now. Iran, it was a message that we haven’t abandoned the region. If you keep this shit up, we’re going to do more. And Iran responded with more threats to close the Strait of Hormuz, their government. I’m not sure what it’s called, Congress, Parliament, pass their permission to do so.

And that’s the big risk now. OK, so that’s the news. All right. That’s all the events. Oil was expected to come in higher. It did. And now it’s off. Gold is expected to come in higher. It did. And now it’s off. The dollar was expected to come in higher. It did a little bit. And now it’s a little bit firmer. So all the responses are in the direction you would think, but they are muted, which is a sign that the pledge protection team is hard at work. OK, let’s go through. Excuse me. Let’s go through.

Our post to this effect, Citibank, this is separate, but it’s got to be factored in. Citibank says it’s bearish on gold. And we put out a final word on that. We suspect it’s talking to producers, not investors. Their past calls helped oil clients hedge before prices drop. Now, signs point to gold miners selling forward into higher prices. The public call may mask private flows. Watch producer activity. We think pressure on gold could build from this selling. Or rallies could be capped because of that. Second story, more to the current events. Goldman warned on Sunday to institutional clients that oil concerns between $120 to $150 if Iran disrupts the Strait of Hormuz.

Current prices already include about $10 in risk premium. While markets see this as temporary, as evidence from the move, some analysts say resolution won’t come easily. Those analysts are me in that respect. Meanwhile, gold is holding firm even as the dollar strengthened, signaling deeper stress beneath the surface. Now, that was for founders. It was like a flash item. We’re going to put out a fleshed out example of why the Strait of Hormuz is important to oil, if you’re not familiar already, and give you some price handicapping. This is Goldman’s version, in my opinion.

This is Goldman’s version of what JP Morgan said about a week ago. The worst case scenario is X. And if X happens, oil could go to $110, $120. Well, Goldman not to be outdone actually threw $150 in there. So, dollar related. There’s an economist out of the UK, Sava Savori. He says a second Trump term will weaken the US dollar consistent with past presidencies. It’s not just about Trump though. From Nixon in 1971 to Reagan and Bush, tariff pressure led to dollar declines. Trump’s trade stance fits this historical pattern. This time, global shifts may give the yuan more influence.

That’s a prediction on a weaker dollar, counts in a historical piece. When Nixon withdrew from the Bretton Woods Agreement, he added tariffs and the dollar went weaker. When Reagan did the Plaza II Accord, that had tariffs involved in it, it got weaker. When Bush Jr., Bush, W. Bush in, I think, 2005, he needed to weaken the dollar. So, every president that needs to weaken the dollar follows a pattern. And Trump is historically consistent with everyone else in this respect. The last piece is, Soft Gen gave us some insight, gave us some data confirming what we already know.

So, Soft Gen and the ECB confirmed de-dollarization is no longer theory. It is now underway. As trust and fiat fades, gold has overtaken the euro and central bank reserves. Bloomberg did a piece on that. The dollar’s decline hasn’t boosted other currencies. Only gold and some BRICS FX. So, gold is going up, the dollar is going down. Emerging markets currencies are going up, the dollar is going down. The rest of the G7 currencies are going nowhere, because this is about the G7 giving some value to the BRICS to their economies. We’re boosting their economies through currency intervention.

Those four things take it together. Let me walk you through something seen over. This is more focused on the Iran situation. Let me walk you through this. We’ve seen this over and over again since the first Iraqi war. Every time a major crisis breaks out in the Middle East, the initial news headlines tend to mislead. Meaning, even when the conflict is severe, the coverage often points to a bearish reaction for oil and gold. That’s not by chance. It’s deliberate. Those who manage the pace of global commodity risk understand that keeping oil and gold quiet is part of managing perception.

The war will end quickly. The war is not a big deal. We’ve got things under control. Go back to your daily lives. Now, oil and gold measure global tension. Oil immediately and gold chronically. They react in real time to unrest, but when that reaction becomes too visible, it gets contained. I’m talking about management of expectations. I’m not talking about manipulation. You may think it’s the same thing, but it’s not. When the Saudis pump oil, that’s to make money for themselves in case the strain gets shut and it keeps a little oil prices.

Buying gold isn’t as important as buying oil during these crises. Anyway, events are smoothed over quickly. Events, not the problem, are smoothed over quickly, or their impact is played down. The goal is to prevent the world from seeing rising stress reflected in rising prices. That’s the event. Now, Michael Hartnett at Bank of America has data on this, confirming what we understand and what we’ve lived through. We’ll refer to it in more detail at another post. But the pattern is clear. Oil often rises during the event, but the move rarely lasts.

Gold can even fall. Then, over the next 6 to 18 months, both assets typically rise. Michael has the data on that. The real price signal is not what happens in the first 24 hours. It’s what unfolds in the months that follow. Let’s apply that to what happened last night. Yes, oil and gold moved. Yes, there was a brief panic, but then it faded. Some will take that as a sign the problem is over. The US did step in, and it did halt the escalation. The US escalated to deescalate. Tensions were diffused.

Kinetic tensions were diffused. Tensions are still there, but actionable tensions are not there. Everyone’s stepping back a little bit. There’s a new player in the room, but resolving the fighting does not resolve the costs. This is where the oil and gold thing manifested a chronic stagflationary problem. Insurance on tanker shipments is going to go off. So is the cost of private security and military patrols. These increases won’t reverse quickly. It’s all part of e-globalization. Stress in the region adds a layer of permanent cost to energy delivery. This builds a price floor under oil and raises input costs across the entire board.

This kind of structural cost pressure is how stagflation begins. The global economy is already slowing. I’m reading off my script here. Adding energy inflation on top of that makes it worse. China will feel this right away. Rising oil prices act as both a tax and a break. So in fact, in that environment, countries usually respond the same way. They print. Though it may sound familiar, it may sound like a trope, but that’s because the cycle keeps repeating. Middle East conflicts leads to higher oil costs. Higher oil costs push inflation up. Inflation pushes central banks towards easier money because it’s stagflationary, and easier money raises demand for gold.

So if you’re long oil or gold and you were disappointed by last night’s market reaction, don’t be. The real move doesn’t come from the headlines. It comes from the structural adjustments that follow, and those have already started. You can see oil up, down, up. The US no longer wants to police the Middle East day to day. It will make a show of force when necessary, but this message to the region is different now. This is no longer America’s fight to participate in. It is our fight to manage. It’s a hockey fight. The result will be higher oil prices.

That’s unavoidable when energy supply roots become less secure and costlier to protect. The difference today is that the burden shifts. The US is close to energy self-sufficiency. China and the broader BRICS block are not. They will feel the squeeze first. At least that’s my problem. All right, so that’s my spiel. Moving on. Coming soon, what happens to gold and oil prices after events like we’ve just seen? That will be in premium today. Bank of America looks closely at copper miners, and where the chance of rain actually closes me straight. That will actually be in premium as well today.

Data on deck. PAL will be speaking a semi-annual monetary policy report before the House Services Committee during a two-day session beginning Tuesday and continuing through Wednesday. Also, we have PCE this week. Looking at the markets. Well, there it is. Nothing about gold looks bad. I mean, look, this is actually pretty cool. In this range, I talked about doing butterflies back here, and I did a couple, but it’s been a great trade. Silver. If you want to look at the right-hand side of the board, the price action today is crisis averted or at least delayed, and everyone’s going back to unwinding positions.

Oh, worth buying. So if you look at the metals specifically, gold is weaker on a bombing. Silver is stronger on a bombing. Platinum is even stronger. So everyone who’s short the white metals and long gold and copper against it are unwinding. This is a microcosm of what’s going on right now when there’s no news items in the market. I’m Vince. That’s it. Well, thanks for watching this morning’s markets and metals with Vince Lancy. We sure appreciate you tuning in and starting your day with us here. Hope you enjoyed the show, and we’ll see you again tomorrow.

Please note that this video is not intended as legal, licensed financial trading advice and is to be used for informational purposes only. Please contact your financial advisor before making any decisions, and thanks for watching. [tr:trw].

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