Although the year-on-year inflation data may decline in the next consumer price index (CPI) release given how low the base was last year, the month-on-month increase could spike, triggering gold price rally, said Lobo Tiggre of the Independent Speculator. “Watch the month-on-month change. Ask yourself, has anything really gotten cheaper over the last month? No, well, maybe lumber, but generally speaking nothing’s gotten cheaper. The month-on-month CPI numbers, numbers the Fed looks at, I think will tell a very strong story that should really send a few tremors of fear to the powers that be,” Tiggre told David Lin, anchor of Kitco News.
Well, the 4th of July is coming up and the major fireworks may not be in the sky, but may actually be financial metaphorically. Speaking, of course, Lobel Tigray of the independent speculator is here to describe exactly what he means by that. Lobel welcome back. We're going to get into the fireworks discussion just a bit, but I want to talk about gold first and you send me a pretty interesting chart over the weekend.
That's so let me just describe what this is. So at the top we've got, uh, the DXY index in the middle on the right hand side is a gold chart and on the bottom is the U S 10 year. So this chart was of Thursday's close. Um, if I'm not mistaken and it shows that, uh, more or less gold has responded more to the dollar index than the 10 year yield.
Can you, can you describe, uh, what we're seeing and how you're reading this chart? Lobo? Sure. Well, this is early days research here because this is a new thing. And that's what makes it really rather interesting. Also this was actually Friday morning, uh, not Thursday nights, Friday morning, but before the close, but what's really striking about that is you and I have spoken.
And a lot of people, you listen to people who talk about what's going on with gold and the number one explanatory variable that people come up with other than manipulation of course, is a real interest rates. And since CPI only changes monthly on a day-to-day basis, you look at the benchmark tenure as a substitute or proxy for real rates.
And we have seen just. Almost like I'm as close to a one-to-one relationship as exists financially. These charts look like mirror images that 10 year and the price of gold on a day-to-day basis, do this roar shock thing. But in the last week or two, we've started to see that starting to come unglued. And on that particular day, at that particular time, it's really striking how you can really see, uh, the DXY the dollar going vertical.
And gold tanking at the exact same time. Meanwhile, rates the tenure, which has been the most explanatory variable is just going to waffling sideways. That is different. And my interpretation of that is that I think the traders and traders not trade tours though. Some people see them as the same on mall street in London, who, who, uh, Trade these futures contracts are starting to really get a clue that, you know, maybe inflation is going to be a little bit more than the powers that be are telling us.
Then maybe it's not good enough to go with the CPI figures that come out once a month. So you'll have, um, not just the broad expectations, but I think financial players are starting to discount the, uh, the data they're getting just from, from nominal rates. And they're starting to factor that in. And what do you do if you can't use the tenure anymore?
What do you plug into your robot, your AI there, that trades for you, if you can't use the tenure? Well, I think the next best thing is to go directly to the dollar and the DXY is, uh, you know, data that you can plug in. So we might see more algo trading, uh, going directly off the dollar. Okay, let's go back.
We'll just try it one more time. So yeah, you're right. The ten-year has been well during, during that time period, at least it was trading sideways now. Uh, are you suggesting a local cause we did have a nice run-up in golden to over the last couple of weeks, up to 200 bucks, um, all the way to $1,900. Are you suggesting that most of that strength came from dollar weakness or higher inflation expectations from traders?
I would say the latter, we have had the dollar testing, that 90 level, which is a multi-year low. And if it breaks significantly below that a lot of, uh, Forex types tell me that will be major. Uh, hadn't done that yet, but another thing we don't have the chart here, David, but if you look at, uh, the nominal tenure over the last three months and gold over the last three months, you'll see that it's sort of similar to what we have here.
In that the tenure has pretty much fluctuated with high volatility sideways. Hadn't gone anywhere, you know, between, you know, one, six, sometimes up to one seven sometimes below. Uh, but gold has gone up. It's gone consistently up the day-to-day movements have mostly reflected the tenure until recently. But if you look at the bigger picture over the last months, Actually you'll see that gold is up substantially while rates haven't really changed.
So this fits in the story that I'm, uh, beginning to, to put some credence in that traders, the people that I'm not you and I are going down to the coin shop and what we pay for gold and silver. But the traders on these futures contracts that set the prices that are most often quoted are starting to change their metrics.
Yeah, that makes sense. Uh, what you said about, uh, gold responding more to inflation expectations because, uh, what you just said there, that, that the 10 was more or less flat over the last couple of weeks, but gold has gone up. So real interest rates is just the nominal rate minus the inflation expectations.
So nominal rate is, uh, of course we know that real interest rates is negative. The correlated with gold. So if nominal rates are flat, then inflation expectations, must've ticked up. And so real interest rates must have gone down driving gold up. So that, that narrative certainly does make sense to me. And actually I think you're right level, because if you take a look, the tippy TF is something we've talked about before the treasury inflation protected security measure a proxy for inflation expectations.
That's been steadily ticking up. Um, that, that leads me to an next question though, which is, this is an interesting phenomenon that I've observed, which is that gold over the last. Five to 10 years, if you, if you chart gold off, I'll pull up this chart here. Gold versus the tip ETF has had a very, very strong correlation, however, gold versus the CPI, which is a backward looking, um, dataset measuring, uh, historic inflation that happened the previous month.
That correlation actually is, is very low. There there's, there's very little consistent, measurable correlation between inflation, CPI, data and gold over the longterm. Um, take the eighties. For example, we have very high inflation in the eighties, but gold went down. So anyway, my point is why, why is it that gold doesn't correlate well with historic inflation, but correlates perfectly with inflation expectations, which is forward-looking.
So it's interesting that you pick the eighties. All right. Let's let's take this one piece at a time. Um, if you look at the last 10 years, we say that they've been largely disinflationary and there hadn't been actually any real deflation. But it's been disinflationary, not much inflation to speak of. Yeah.
And if you disregard the noise and you look at 1,910 or 1,905 gold, where we're at as you and I speak and the peak of 1900, uh, almost 10 years ago in 2011, well, goings Gold's gone sideways. So you could argue that Gold's gone sideways. Inflation has gone sideways. These actually screen out the noise and they're on par.
Um, but the seventies. Or the most inflationary period since the dollar was divorced from golden 71, by tricky Dick Nixon and the story there, I think fits in what you're saying, it's it wasn't so much how much prices went up today that made people I run out and buying gold or silver. And in my case, it was silver at the time with my, my lawnmower boy money.
Um, but it was the, the expectation, the understanding that, oh my gosh, inflation is out of control. These headlines. These nightmare headlines about how inflation was going to the moon. And we weren't going to, you know, it didn't seem possible. The fed couldn't control it, you know, pre Volcker, it seemed out of control.
Nobody knew what was going on. So that fear drove a lot of people into gold and silver that who wouldn't otherwise. So it was a very strongly, the expectation, not just the reality. If you look at just the numbers and correlate them, you'll get a different thing than if you correlate the expectation and that's.
Broadly speaking. I think that makes perfect sense. I I've often described gold as a fear barometer, but people want to look at the supply and demand. How much is coming out of the mines and how much it's being made into jewelry and all that stuff. And I think that's an erroneous way to try to predict the price of gold because as you and I know most of the gold that's ever been mined is sitting around in refined form in vault somewhere or another.
So the potential supply can always completely swamp. Any industrial or jewelry or other demand out there if suddenly everybody decided to sell. So the psychology is paramount here. The keeps it imbalanced is how much people fear. And that's why I see it as a fear barometer. And that's why gold is more closely related to expectations in terms of big price moves.
Sorry, one more thing real quick. But if you look at the big picture, like, you know, 10 year, whatever you look at the biggest picture that we can of the new monetary regime since 1971, when the gold standard was formally, finally completely killed. You know, Gold's gone from 35 bucks an ounce to here we are above 1900 and the dollars purchasing power has gone from whatever it was to whatever it is now, but quite the opposite.
So if you look at that biggest picture, I think you can still see that goal does actually correlate long longterm with inflation. The destruction of the purchasing value of the dollar is captured in the price of gold today. Yeah, that was my, okay. So this is one interpretation of these charts. And let me know if you agree with disagree with this point.
Um, I think I know your answer, but I'm going to say it anyway. Uh, so now the way I see it is that. There, there may be a misconception amongst the marketplace. That gold is an inflation hedge. And so everybody's still expect gold to be an inflation hedge, which is why it correlates perfectly with inflation expectations yet.
No, one's really bothered to look at the data. If you'd just take diff just plug gold next to medium term inflation. That correlation again, as we talked about is not a, it's not very high, so maybe it might be, uh, it might, it might be a while before the marketplace realizes this, but it won't happen right away.
How would, would you agree with disagree with that statement? I think, I don't know what kind of Matthew did David. Uh, and we're not going to dissect it now here on camera, but I do think that the timeframe is pertinent here and it's um, it's I mean, like I just said, if you look at 1971 to today and you look at the purchasing power of the dollar and you look at the price of gold and they're like an X on the chart, they're actually somewhat curved X, but still, uh, Opposite.
And clearly there is a relationship there that is nonzero. Uh, now how, how that plays out, I think is, or what's really PR like we're not going to have to have an intellectual discussion about exactly what that means. We're trying to be helpful to people out there making investment decisions. And here's how I see it.
I don't buy gold, um, because I want to trade on higher inflation. I don't want to buy gold to sell next year because I think inflation is going to be higher. I want to buy gold because it is gold. Because no matter what happens to the currency, it, you know, an ounce of gold is still an ounce of gold and it can be used to make XYZ number of rings or gadgets or, or whatever.
It, it it's, uh, one of the 92 naturally occurring chemical elements that has unique and distinct properties and it has a certain value. Um, so. you look at it over, not just decades, but centuries or thousands of years. There's a famous thing. I can't substantiate this, but it's often said that one ounce of gold is roughly equivalent to the price of one really good suit across millennia or, or something like three or 400 loaves of bread or something like that.
Right. And I just lived at the supermarket the other day and I think that actually still holds true. So, or several hundred pickup trucks. Or several hundred big Macs, actually. Yes. If you, if you look at the noise longer term that the gold big Mac ratio is flat actually says what I'm saying, a big Mac is a big Mac and you can eat it.
An ounce of gold is an ounce of gold and it has certain uses. That's the reason to own it because it is real. And it doesn't change. Let's link this into the article that you wrote recently as to why. You're a big, sorry. I have to think back of my mind why you're a big Mac proponent. No, that's not what I meant.
Why you're, why you're called bunk. That's what I meant to say. The title of your article. I'm a gold bug because I've seen real inflation and devaluation. Great article. Tell us about a thumbnail for us. What's the summary here? Why are you still a gold bug? Uh, so sort of a running joke I used to have at Casey research is that I was the cheap Mexican knockoff.
Doug Casey. As he got older and he didn't like banging his head on these little old colonial tunnels and stuff. He'd send me in there to go kick the rocks for him. It's uh, I, I made that joke myself. Doug never said that. Um, so the fact is I have family in Mexico. My mother's from Mexico. We spent a lot of time there when I was little.
And that was where I first came across the idea of inflation. And I was quite the enterprising little twerp. I was, I was in a noxious bread, uh, but I had garage sales and I did all kinds of things to try to raise money. Uh, and, and I won it in my idea was to become a store owner. And then my mother explained to me about this concept of inflation, which was really quite high.
This was the seventies in Mexico, which was the U S on steroids. Um, so long story short, uh, you know, I understood this. I was horrified. I immediately, as soon as I could went to the bank and exchanged my pesos for dollars that I had earned and not long afterwards, it was a devaluation and I don't remember the exact numbers, but it was, it was literally on the order of a double overnight, like bank holiday next day, your money's worth half of what it was.
It just like this feeling of like, oh my gosh, you know, saved by the bell from this devaluation. I'll never forget that. And then here's the kicker is this was seventies, early seventies, come back to the U S in 1979. And what's going on in the U S in the late seventies, you know, super high inflation in the U S and that's what really got me to think that, you know, all of these funny money, pieces of paper, these Fiat currencies, um, they're all untrustworthy.
And that's when I started converting my lawn mower, money savings, and so on, into silver. Okay right now. And, uh, you started, you started collecting coins and bars at a young age. How did you, how did you ETFs went around back then? So, uh, no ETFs points. Uh, you know, the article says Goldbug, but I wasn't making enough money on my lawnmowers and there weren't many fractional ways of owning gold.
So it was pretty much silver for me at the time. Uh, I, I converted earnings like that was my savings. At the time I converted earnings to, uh, silver coins, even, you know, pre 65 junk, silver, whatever I could at the coin shop. I was also a scavenger. I found out early that there was silver used in electronics.
That's not a new thing. I remember finding a, with a friend of mine, we found an old world war II radar set that had the slab of silver inside, like a pound of just solid slab, silver and sound of silver. Okay. So it was, it was kind of a fun treasure hunt. Nice. Nice. All right. Well, uh, next time you go on these treasure hunts.
If you ever do you still go on these treasure hunts Lobo. No. I dumpster diving in Puerto Rico. Doesn't sound like much fun to me. It sounds like a lot of fun for me here. We don't have these experiences up, uh, YouTube on that. David I'll let you know, let us know Lobo. Now, before we close off, I started by talking about fireworks.
That's something you talked about offline now. Uh, give us, give us a synopsis. Don't let us, don't keep us hanging here. What are you talking about? Okay. So there's a lot going on. So real quick, there's been all this transitory, transitory, transitory, transitory, and the, and the year base effects. We all understand that, but there are some really key numbers coming up soon in the next CPI number.
I think it's quite possible that since last month was the peak year on year base effect is that the year numbers will go into retreat, but watch the month on month change, cause ask yourself, has anything really gotten cheaper over the last month? No. Well, maybe lumber. But generally speaking, nothing's gotten cheaper.
So the month on month CPI numbers, core CPI numbers, the numbers of fed looks at, I think we'll tell a very strong story that should really send a few tremors of fear through the powers that be. So watch these numbers, you know, discount the year on year changes. Look at the month on month changes. This could cause some real fireworks.
We also have the Basel three, um, Implementation coming up. If they don't delay it, that's interesting. And a whole huge big topic. I don't subscribe to some of the grand visions of this, that some people have put out there, but this is significant. There is a rule change coming and it is supposed to be implemented by the end of June.
And it will affect how banks treat and hold gold. And apparently, you know, the, uh, the. The world gold council on the M LBMA sent a letter into the powers that be saying, Hey, this is going to screw our business. We really, we need a, we need an exemption here. And if they don't get it, that can cause changes in the futures markets, which I think a lot of gold bucks would, uh, you know, maybe wealth them.
So that's interesting. I, I'm not going to predict how it's going to come out. The Basel three keeps getting delayed. Maybe, maybe it gets delayed again, July, right? The implementation. I understood June 28th was okay. Was the deadline for that particular rule. And we'll just have to see the regulation has been proposed in 2008.
So it's been plenty, plenty of time for Mexico. Ready? As I understand it. I'm not a central bank expert, right? I'm not one of those economists that's focused his life on central bank. So probably get somebody more expert than me in here, but reading the same articles that you and our audience probably have.
I understand the overall implementation is scheduled for January next year, but this rule about, you know, your, your, uh, the N I R C or whatever they call it, this, this rule about how you treat gold as reserves. Um, that I understand is supposed to go into effect on June 28th, and that does have an impact on, you know, the LBMA and the comics and how they account for their allocated non allocated.
Uh, I guess reserves. I mean, they're not, they're not a bank strictly speaking, so I could actually see them getting an exemption, but right now it could cause them some heartache, which would be interesting. And, you know, if their requirements were increased, Uh, I think most of us out there that would like to see better price discovery in the golden silver markets would see that as a good thing.
Okay. All right. Well, look out for that. Thank you, Lobo. We'll follow up. And, uh, finally close out the conversation. We'll talk about the gold price overall. Now I see on your bookshelf there, the intelligent investor, I noticed that thank Graham's book. I noticed the, I noticed the cover there right in front of it.
My stacks, like this is what I picked up on silver squeeze day two. I haven't done any bid night gardening yet. Uh, so it's, it's still waiting disposition, but Hey, I did my part. Okay. So anyway, Lobo, let's show this chart. Uh, long-term silver. And, uh, long-term gold. So anyway, silver is about $28 right now. Uh, and gold has been, uh, well, this is, this is, uh, yeah.
Anyway, it's not yet. Not yet at, uh, not yet breaching all time highs, but, uh, we're, we're, we're, we've seen a good pull-up since early, uh, Since early March. Anyway. So the point I'm trying to make no Lobo is that, uh, prices are still historically speaking, quite high compared to what they were many years ago.
So as an investor, you're looking at this, you can interpret this in one of two ways. Well, historically it's high, maybe it's due for a pullback or historically it's high. Uh, maybe this is a good opportunity to look for stocks, right? Maybe, maybe, maybe, maybe the golden silver miners. Well benefit greatly from prices at these levels.
What do you think? I think that's an excellent point and it's one I just made in my, uh, my free weekly newsletter. This Saturday went out. I think this is really important. David people, they get all upset about the price and what it should be, what it isn't and who's manipulating it. What's going on. I understand that, you know, I hate being ripped off.
So I get that. But my job, what I'm trying to provide for your audience in mind is guidance that helps us make money as speculators, as speculative investors. So I'm not here to debate the philosophy of the price discovery mechanism, what I'm saying and what you've just shown on those charts. And if you look at the averages.
I mean, look at, look at gold gold, over $1,900. That's a great price, but you know, the average over the last year is around 1840. That's a fantastic gold price. Most of the gold mines in operation now, now were designed at, or. At the $1,300 price or even lower. And they're now operating based on price assumptions that are way lower than what we're realizing now.
And this isn't a peak. Okay. The, you know, 1900 right now is a short-term peak, but the 1840 price I'm talking about, that's a year long average. These guys make tons of money at that price. And 24 50 for silver people get all upset about silver, not being higher, but the silver miners, the better ones, you know, they were, they learned how to make money at less than $20.
Silver. And for it to average over 24 bucks for a year, that's a fantastic silver price for the business. And nevermind, you know, the philosophy. If the goal is to invest in good businesses that can see share price appreciation. If we're right about the metals prices going higher, then this gives us a tool look at who was able to make money over the last year.
COVID in all. If they could survive all the ups and downs of 2020. That's a great tool for stock picking and those companies will be poised to do even better. If you know, if we're right about gold going higher, I do expect gold to head up towards $3,000 before all is said and done, maybe higher. I expect silver over one 50, maybe closer to 200 before all is said and done, but those are peaks that the longer term average price.
He can make money there and we can see which companies can make money there. We can see which exploration and development projects can make money where we are now. So there's opportunities to make money here that I think that people just don't do themselves as service. If they get all bent out of shape over what the prices are, should be instead of looking, you know, how can I invest where things are now?
Well, if silver is at $150, I don't think you'll expect a pound of it in a radar detector, no more excessive hunting for you, Lobo every one's going to be thrifty on silver, but, uh, anyway, uh, great, uh, thoughts and where can people actually find out your stock picks? We very much, uh, independent speculator.com is the place to come and see.
And I'm not a TST, but I never tease, you know, and say, oh, sign up now and you'll get this, you know, I have the same price as all the time. Nobody gets a discount. I never give away picks for free. I do give away guidance and market observations as you and I have been talking about that's available in the free weekly digest.
Um, but if you, if you want to do business with me, I welcome you. And there are plenty of links on the website for how you can sign up for my paid services. Excellent. Well, thank you very much Lobo for your update this week. And, uh, we'll look forward to speaking again soon. Thank you, David. Thank you for watching Keiko news.
I'm David Lynn. Stay tuned for more. .