Hello my friends. Today is November 1st and this is Markets Weekly.

So this past week, super exciting week in the markets. We had the Fed meeting. Uh there's a video about that on the channel and of course we had Trump's tour in Asia as well as Max 7 earnings.

Now Meta disappointed the market was down a lot, but everyone else was okay. Amazon notably up 10% after earnings.

So the broad markets I think were overall mixed.

Today, let's talk about three things.

First off, let's briefly review what happened with the president's trip in Asia, where we got more details about the big investment deals Japan and Korea had promised the president.

Secondly, the World Gold Council released their latest report on the supply and demand factors driving gold prices higher. So, let's take a look at that.

And lastly, there's brand new research from the Federal Reserve on the impact of tariffs on US manufacturing. And so far it's not positive. Uh but maybe we can find out why.

All right, starting with the president's trip in Asia.

So let's level it a little bit. Over the past few months, again, a lot of trade headlines. The president sought to renegotiate the US's trade relationships with the world.

Now, what we found out after all this excitement was that the US for the most part has much more leverage over other countries than previously thought.

In particular, uh, countries like Japan, South Korea, Taiwan, uh, European Union need the US for defense and also need access to US markets.

So, the US was able to extract significant concessions from them.

In the case of Japan and Korea, in order to buy down their tariffs, they were willing to make huge investment into the United States.

The way that I look at this is that over the past few decades, these countries have been making a whole lot of money off global trade, accumulating large foreign exchange surpluses, and the president is basically taking all that back by forcing them to invest in the US.

Now, the one exception in all this, of course, is China, which we found out that the Chinese are very strong.

They have something rare earths that the US absolutely needs, and of course, they have a much higher pain tolerance.

So in a sense, China probably stronger than the US when it comes to the trade deal.

So over and over again, we have what appears to be uh the White House reaching out to China, well doing something strong and then reaching out to China to try to climb down and uh that seemed to happen this time as well.

Now the reaction the president received in Asia was of course mixed.

On the one hand, we have the president's meeting with the new prime minister of Japan.

Let's take a look. the first female prime minister in the history of Japan.

Madame Prime Minister, >> looks like she really likes him, right?

They're having a good time.

So, we have a bit more detail about Japan's $550 billion commitment to invest in the US.

According to a the memorandum overview released on the White House's website, about 330 billion of that will be in US power infrastructure. So nuclear reactors, power substations, turbines, and so forth.

And it's going to be in cooperation with US companies.

So what this looks like to me is that the US is trying to get uh trying to use Japan's help to build up US expertise and is also concerned about the electricity demands of AI going forward.

So in a sense, they're trying to basically with Japan's help uh rebuild some of the US's infrastructure. So that seems like a really good idea.

U when it comes to South Korea, also very good reception.

The South Korean president gave the president a uh gold crown, literally a gold crown and um promised to make $350 billion in investments in the US largely in technology.

However, Japan um I mean South Korea does not have as much cash as Japan.

So they're on a schedule where they saying they're going to disperse uh 20 billion a year.

It's going to take some time, but of course better than nothing.

Now there's some commentary that maybe this is all fake and so forth, but you know, Japan in particular usually very good, reliable, and um honest uh allies.

So don't see why they wouldn't follow through on their commitment, at least through the Trump administration.

Same for uh South Korea.

Now, when it comes to China, I think the president got a little bit different reception.

Let's take a look.

>> Good to meet you.

>> Great pleasure to see you again.

>> Good to see you again.

>> Me, too.

>> And we're going to have a very successful meeting. I have no doubt.

>> But he's a very tough negotiator. That's not good.

we know each other well.

So, it seems like the president is overjoyed to meet Uncle Xi, but you know, Uncle Xi is like, "Yeah, whatever."

And this kind of shows in what actually happened in the in the negotiations.

At the end of the day, uh the president lowered tariffs on China by 10% essentially reducing the fentinol tariffs on China and exchange got a commitment to purchase more soybeans and to look more into uh the production of fentinel precursors and a one-year pause in implementation of uh rare earth the new rare earth regime that they could potentially use to control the supply of rare earths to the world.

So overall, it seems like uh both countries, you know, got to uh extend this truce.

There's stuff about port fees and so forth, but you know, you you seem it seems to me that with a 10% reduction in tariffs, it was of course the Chinese that had the stronger negotiating hand and walked away with probably a better deal.

But hey, the markets liked it. We front front ran that over uh throughout the week.

And if you look at soybean futures, the soybean farmers of America are rejoicing because now they have uh someone to buy their soybeans.

So things seems to have worked out for uh to some extent everyone.

And I think that probably concludes all this trade negotiations for for some time.

So uh let's move on to the next topic which of course is the latest report from the world gold council.

Now, this past year, gold has been one of the top performing assets.

We did have a notable tumble the past few weeks, which we've been talking about. But I think it's interesting that the World Gold Council here has this report breaking down more concretely the supply and demand factors that have been driving gold prices up almost 40% this year.

Now, obviously though, just to be clear, the biggest driver is increased demand in investments, but let's go over uh the few of them listed here.

Now, first off, where do what are the basic demand drivers of gold?

The most obvious one, of course, is jewelry.

Before we had all this, you know, dalization, debasement, all that stuff. Gold for most for most people is something that they use in jewelry.

Now, jewelry of course is going to be more price sensitive.

So, over the past year, as gold prices have surged, we see jewelry demand falling.

So, that's no surprise, right?

Things are more expensive, you buy less of it.

Basically, it seems like demand for jewelry has been crowded out by other demands.

The biggest driver in demand over the past year has been in investments and investment demand in gold comes in two forms.

One is through ETFs.

So, if you buy the GLD ETF, for example, the ETF actually goes and buys physical gold. So, it's not purely paper.

The second source of demand is of course just more traditional coins and bullion.

Now if you look at ETF demand for gold, it's been absolutely surging.

So ETF uh gold ETFs are global.

It's not just JLD. There's actually a few in the US and there's also a gold ETFs abroad as well.

And that source has been a very big driver in the gold price going forward.

But if you look at more just physical demand coin and bullion, it's also held up pretty well as well.

Now a second often cited narrative for gold demand is central bank buying.

Now we've all seen many charts where people say that central bank holdings of gold have actually uh grown more than treasuries.

But that's super super mis uh misleading because yes the central banks are buying more gold but the reason that their gold holdings look bigger in dollar terms has largely been because of price appreciation.

So, central banks are buying gold. Yes.

But that huge growth in their gold holdings largely through price appreciation.

Now, looking at this chart from the World Gold Council, what's interesting is that gold demanded by central banks is actually lower this year than the last year.

To be clear, it's it's still historically pretty elevated, but it is lower this year than compared to last year.

They have a very interesting chart finding which central banks have the largest demand for for gold.

And surprising to me, it's actually the Polish central bank that has the most demand for for gold uh this year.

So, pretty interesting uh Rinko.

You'd think it would be someone like China, but actually it's it's not.

Um looking moving over to the supply of gold, it looks like the supply from mines has been pretty elevated over the past few years, but of course mining supply of gold is full of uh randomness. You have accidents and so forth.

And of course you do have some mines that continue to come online.

What I find interesting about this report though is its report on the supply of uh recycled gold or scrap gold.

So one of the things that I remember back in the last gold rush after the great financial crisis is that when the gold price became elevated, you had all these businesses sprouting out sprouting out across the country saying we buy gold.

And what was happening was that the general public was seeing that gold prices have become so elevated they were rushing to sell their gold like their jewelry or their family heirlooms or whatnot uh to cash out.

Of course, what's implicit in that of course is that they're thinking that the gold prices had gone too high and they want to uh capture some cash.

So, so far though, even as gold prices remain elevated, uh the supply of recycled gold is, you know, hasn't really jumped.

So, the reports seem to view that as some potential that u maybe the retail public thinks that the gold price is not could could still go higher because if you thought it wouldn't go any higher higher, you would go and you would be selling your own gold.

So, uh so far looking at the price chart, we do seem to be consolidating and so let's see what happens.

Usually it takes a bit more time after we've had such a big tumble.

All right, the last thing I want to talk about is this interesting research from the Federal Reserve about the president's uh impact of the president's tariffs on US manufacturing.

So the big picture of course is that the president would like to revitalize US manufacturing.

There's some very good reasons for that. national security of course can be relied upon other people for for lots of our goods but also it creates jobs right so that's some there's been a lot of loss of uh blue collar jobs in the US and the president would like to help those people out the way that he's doing this one it's multi-prong imposing tariffs to make imports more expensive a lot of subsidies through the OBBA and of course the dollar has been weakening so it's a it's a it's a complicated puzzle and they're trying to solve it.

There's been a lot of loss of uh blue collar jobs in the US and the president would like to help those people out.

The way that he's doing this one it's multi-prong imposing tariffs to make imports more expensive a lot of subsidies through the OBBA and of course the dollar has been weakening so it's a it's a it's a complicated puzzle and they're trying to solve it.

So, how are they doing so far?

Well, first off, we should be clear. Uh the likelihood of a company looking at all this policy change and immediately building a new factory is not high because when you build a factory, it takes a lot of money. It takes many years.

And as we all know, there's not a lot of policy certainty. Maybe we get a new president in a few years. Maybe Zora Mandame or AOC comes online, becomes the president, and then we take all these tariffs out.

then you know your multi-billion dollar factory that was built with u with the view that tariffs would make domestic production attractive just just doesn't work anymore.

But what tariffs could immediately impact though is existing capacity.

That is to say that tariffs go up and immediately imports become more expensive relative to domestically produced stuff.

And so there's a good argument that factories that are already in the US uh could become busier.

And there are some stories and major publications about this.

But the data that the Federal Reserve presents shows a slightly different picture.

First off that they find is that manufacturing capacity in the US is uh is you know a bit low.

So they definitely have a lot of excess capacity.

Whereas if there was a surge in demand these factories could definitely ramp up.

Now the question is that are these now manufacturing is a very broad field and the presence protections extend unevenly right huge protections in aluminum in steel and so forth but other other fac other factor other fields not as protected.

Huge protections in aluminum in steel and so forth but other other fac other factor other fields not as protected.

So what the researchers did is according to industry code they tried to figure out a measure of how protected this industry is and then find whether or not there's a relationship between changes in industrial capacity and changes in how protected uh the industry is.

The thinking was that over the past few months as protection for one industry increases maybe there will be uh increase in their um oh so increase in their factory utilization. So they'd have less capacity, right? Because they're utilizing it more.

Now they run this regression and what they find is according to this chart there is no relationship.

So it doesn't seem like um it's been these tariffs have been helping u existing factories become busier.

Well, that's kind of a head scratcher, right?

Immediately a lot of imports become more expensive. Why haven't these domestic uh manufacturers become a little bit busier in superprotected sectors of the market?

So they take a step forward and they look at a survey that asks these companies why is your factory utilization relatively low and this is what they found. It's actually super interesting.

Now according to what they found is that the more protected industries actually have uh more oftenly cite a lack of demand.

So what that means is that yes the tariffs are probably helping uh in the sense that imports are becoming more expensive but there's just not a lot of demand and that speaks to broader economic weakness uh which you know anecdotally many of us hear.

The second interesting finding is that these protected industries also have trouble finding uh qualified people.

Maybe there's not enough people who are trained in these specialized trades or something like that. But that seems to be another reason why they have trouble well ramping up capacity.

So it's both demand and uh a lack of human capital.

So, it's not clear that the tariffs aren't helping, but it could be just the broader economic weakness is outweighing it.

And the researchers are also careful to point out that these shifts take time.

Maybe the people who are importing abroad and they need some time to readjust their supply chains, find domestic sources, and maybe it just to take some time for for people to gear up in production.

So we've only been doing this uh this new tariff regime uh for some time and only recently have become to have more stability in tariffs.

So this is something that we can continue to watch.

Again according to common sense you'd think that if imports become more expensive domestically produced goods become more attractive on the margin.

So it doesn't seem like that would hurt.

All right. So that's all I prepared for today.

Thanks so much for tuning in. I'll talk to you guys next week.