So today, let's talk about what could be driving the precious metals and also some interesting things that are happening in Japan where it looks like the BOJ's purchases of ETFs way back then is now actually being very very profitable. All right, starting with the precious metals. So as we can see from silver looks like it's just doing super well. If you're a technical analyst or anything like that, it's obviously going parabolic. Gold doesn't look too bad either. Now people always have these various stories as to what drives gold and what drives silver because everyone buys and sells them for different reasons. So today let's talk about it from the perspective of the dollar strength and from geopolitics because both of them are really heating up. Now if you look at the news the past week some of the very interesting things that are happening is that it looks like the US is on the cusp of taking over Venezuela. All the chess pieces are moving into place. Again, last week we talked about Trump's new national security strategy where he added a Trump correlary. That is to say that the Americas will belong to the US. Now, a lot of people who are specialized in this tell me that um the national security strategy is not so much an aspirational document in so far as it is about codifying existing practice. So, this is something that they are already doing. Now, they're still kind of formalizing it. Now, over the past month, we've had the US, you know, just casually bomb some Venezuelan drug boats, Call of Duty style, and now they're moving more and more assets. And this past week, they seize a Venezuelan oil tanker. So, escalation there. And that also has uh an additional effect in that Venezuelan oil being often times sent to Cuba, which of course is not friends with the US. So by seizing that oil tanker, the US is not just starving the Maduro regime for revenues but also weakening its ally uh in Havana. Now in addition to seizing an oil tanker, we also have the US military with the assistance of the US military uh the smuggling out of major Venezuelan opposition leader to Norway to receive her Nobel Peace Prize. So regime change 101. After you topple the current regime, you have to have your own uh your own person ready uh to take over, right? And it looks like uh Mashado is this kind of person and of course the international community giving her a Nobel Peace Prize further burnishes her credentials to at least um uh to at least garner international support. Right? So you give these I guess these titles. It's like giving someone a PhD and magically some portion of the population will follow you as the expert. So you got your opposition leader waiting the wis. You gave her an extra credential and now you have military assets uh just waiting to further starve the regime. Looks like there's also ongoing discussions uh to see how Maduro could potentially just peacefully leave. sounds like he's looking for some guarantees and uh maybe a payout. Uh we we'll see how that turns out. But it looks like yes, the US is imminently about to do something with Venezuela and that of course uh suggests that Cuba would would also be impacted as well. So these brewing geopolitical tensions.

Secondly, on the geopolitical tension front, you have the European Union poised to to uh do something extra with the sea the frozen Russian reserves. So remember after the Russia Ukraine war started uh the international community uh immediately froze Russian uh sovereign assets. Now Russia had been aware of this potential for some time and so they prepared by moving a lot of their foreign reserves out of dollars into gold but they still kept a sizable amount in euros about a hundred billion euros. It seemed at that moment they felt that maybe Europe was a safer place than the US but uh that was a miscalculation. So the euros also froze Russian reserves. So they froze it though but they did not confiscate it outright. Now as the war continues and the US is withdrawing their financial support from Ukraine and Europe you know has some fiscal troubles and is always difficult to to act fiscally. they are uh you know not just one country but many many many individual countries often times difficult to agree on something. Um so rather than put their own money up to support Ukraine they thought maybe it makes more sense to actually find a way to take those Russian reserves and use them to um finance the war on behalf of Ukraine. And it looks like they're going to do that. So if you recall from 2022 after uh the international community froze those Russian reserves, we kind of set off a very strong bull run for gold. And the thinking was especially if you are a sovereign actor that if you are say a country with a lot of dollars that may not be friends with the west, you may not feel safe holding all your foreign reserves in euros or in dollars. So you have to diversify a little bit. And the obvious diversifier of course is gold which you can hold in your own vaults. Has no counterparty risk and you know not not nearly as liquid as treasuries or something like that but but still a relatively large market certainly a lot larger than um I don't know crypto or something like that which no one will ever uh put foreign reserves in. So we saw a big bull run in gold and now you know you see you're seeing maybe an additional impetus for that diversification trade. Uh because let's say just hypothetically, I don't know if this will ever happen. Let's say if there's some military conflict between China and Taiwan and of course China holds a whole lot of dollars. It would be really really unfortunate for China if those dollars or euros or whatever were frozen and then given to Taiwan for their defense. Right? So again that seems to further add the impetus uh to sovereigns to to uh have to diversify a little bit out of the dollar and into into gold. So again two big geopolitical catalysts that seem to be pushing precious metals higher.

Now the second thing that's happening is just more traditional macro. So it looks like the dollar is set to further weaken. If you look at a chart of the Dixie uh did have kind of a rebound where the dollar strengthened a bit but then now it seems to be trending lower and there are good reasons for that. Now as we talked about in our Fed episode, it looks like the US is poised to cut rates further next year and depending on how uh the the politics shake out, you know, maybe we do have a more Trump influenced Fed that ends up with uh lower interest rates than what the market is even pricing. the market is pricing in that we'll cut to about 3%. Uh some of the Trump appointees suggest that it will make more sense to cut to maybe two and a half. So that would be you know about 100 basis points in cuts next year. And data will obviously play an important role as well. U but if you look at other major countries uh major regions say Australia or Canada or the European Union it looks like they're done with their cutting cycle. In fact, there's actually some noise that Europe may think about hiking rates next year. So, if everyone else is done cutting or maybe even hiking next year and the US could potentially cut more than the market expects, then that's a recipe for further dollar weakness. And so, if that's the case, that's an additional tailwind for the precious metals.

Now the second thing I want to talk about is something that I thought was super interesting. So say about a decade ago uh Japan of course suffering from deflation disinflation was really desperate to stimulate their economy. Now we know we all know that they are one of the countries that experimented with all sorts of things right they are a pioneer in quantitative easing did it to a huge extent pioneer in things like yield curve control um and also a pioneer in just buying the equity market. So the bank of Japan in an attempt to stimulate the market began to buy equities through ETFs and also REITs uh to a large extent about a decade ago. Now the interesting thing about that was that initially it did boost the equity market. You know kind of rekindled animal spirits after all the central bank is buying. How could you be bearish? But the strange thing was that that actually petered out. And so uh even with the central bank buying it was not able to kind of set off a big equity a bull market. However, fast forward to today um maybe in conjunction with fiscal stimulus it we definitely see animal spirits roaring in the nicay which is has been doing super super well right. So you have a lot of positive things happening in Japan. you have fiscal stimulus and you have of course what appears to be sustainable inflation uh above 2% maybe their virtuous wage price spiral as they would like to call it and as Japan has sustainably moved to out of deflation uh they the central bank has been thinking about pairing back stimulus we've seen them hiking there's expected to hike again and they're also they've been doing QT and they've also thinking about slowly slowly selling out of their um equity portfolio that they've accumulated in the past. But what's happened though is that because of this tremendous bull market in the Nicay uh the central bank is actually sitting out tremendous amounts of profits. So even though there's they're expected to sell about 1% of their holdings a year. So it's going to take many many decades for them to finally get out of their equity position. their equities have appreciated so much that they're generating sizable profits according to Bloomberg's calculations. Maybe they're going to net um let's say profits about a half% of a GDP a year through unwinding their asset purchases. So this experiment in buying equities which seemed so unconventional maybe even reckless back then is actually having very positive fiscal benefits that it's helping to helping them to uh reduce their fiscal deficit.

And that reminds me of other central banks again it's very unconventional for a central bank to buy equities but another one big one is the Swiss National Bank who actually buys it for a very different reason. uh for Switzerland they for them their currency is a very important policy lever because they are a big exporter watches and chocolates and so forth uh but the problem for them is that they are widely perceived because they are well one country to be a safe haven even in Euroland so when you know you have concerns about how eur what's happening in Europe a lot of wealthy Europeans will hide their money in Switzerland that causes the Swiss Frank to appreciate too much and makes their exports uncompetitive So in order uh to push against this massive appreciation of their currency, uh this the Swiss National Bank would be selling Franks and buying foreign currency trying to weaken their currency. And because they hold so much foreign currency, they don't want to put it just all in treasuries or other sovereign debt. They also buy equities as well. And um you know, since they've been doing for that for some time, I'm guessing they're also sitting on significant windfalls.

So thought this was a pretty interesting story where when central banks are actually buying equities, it it could actually have a positive impact on uh on a country's finances uh when the equity market goes up and again the Fed has not and is forbidden by law to buy equities. But I think it's uh it's just an interesting case where should this tool be deployed uh we have examples of it being de um deployed successfully. All right. So that's all I've particip that's all I prepared for today. Thanks so much for tuning in and um next week I think I'll give my markets 2026 overview view. Of course it's just uh for entertainment purposes and sometimes I'm wrong, sometimes I'm right, sometimes wrong a lot. So, we'll review how my 2025 outlook did as well. All right, talk to you guys next week.