Title: These Are The Catalysts That Could Send Gold & Silver To New Highs Show: Goldfinger Capital (host Robert Sinn) Guest: Luke Gromen, founder of Forest for the Trees (FFTT) Date: 2026-08-14 URL: https://youtu.be/lZCp_awJSa0 Length: 53:12 Note: Fillers (um/uh/you know), stutters and false starts removed; wording otherwise verbatim, every (mm:ss) cue kept in place. Auto-transcript garbles corrected: "Blue Groman"→Luke Gromen; "Wars"/"Worsh"→Warsh; "Bessant"/"Besson"/"Besset"→Bessent; "Ducken Miller"→Druckenmiller; "Bernani"→Bernanke; "Dan Kaine"→Dan Caine (CJCS); "Rio Tento"→Rio Tinto; "New Pneumont"→Newmont; "Carmen Reinhardt"→Carmen Reinhart; "Doge"→DOGE; "co"→COVID; "hund00 million"→$100 million; "stmmies"/"stemi"→stimmies/stimmie; "15925"→159.25 (USD/JPY); "reeregulate"→re-regulate; "38 of a percent"→3/8 of a percent; "44"/"46 47"→4.4 / 4.6, 4.7 (10-yr yields); "8020"/"7525"→80/20, 75/25; "O2"/"08"→'02/'08; "911"→9/11; "Jackson whole"→Jackson Hole. Two garbles left as spoken and flagged here: "we still don't raise the right flag" (he means wave the white flag) and "leading us into a stupid World War II" (context implies World War III). Where a cue splits a number mid-sentence (10-yr "4." / "7", "4." / "6%") the split is left in place so the timestamps stay accurate. Bracketed noise tags ([music], [laughter], [snorts], [clears throat]) removed. =====
00:05 Good afternoon. We have a returning guest here on Goldfinger Capital. His name is Luke Gromen. He writes The Forest for the Trees and he's a prolific podcast guest. Really very astute commentator on Market Macro. Luke, it's great to see you again. >> It's great to be here.
00:35 Thanks for being back on. >> Yeah, my pleasure. So, a couple weeks ago, I watched another one of your interviews and I actually posted it and commented on my Substack. I found it to be very insightful and you really got into why the debt dynamic, the sovereign debt that we're facing here in the US is such a challenge at this point and why this bear steepening that we're seeing in the yield curve is only going to cause more problems and accelerating problems.
01:08 Can you talk about that for us? Yeah, I mean it really comes down to when you look at what they're spending it on which are uncutable, right? You it's roughly 100% of receipts today are interest and interest-like obligations. So interest on the debt already. Entitlements which have an inflation adjusting component.
01:31 So it's really like debt in a hard currency are entitlements. And then veterans benefits which are up to 8% of revenues from basically zero when we started the 25 year ago forever wars. And so you're already in a critical position where when you have there's a view that if you can lower the front end, increase the long end and then re-regulate or regulate banks into buying a lot more of the long end so that it doesn't cost against their capital control or their capital ratios, excuse me.
02:12 And you'd probably practically speaking have to provide swap dollar swap lines to those banks if they were buying duration because you wouldn't want to blow up your banks if rates rose like the Bank of America had a bit of a problem buying all these low lowly yielding long duration bonds during COVID and then rates rose and swap lines.
02:40 You know, if you get the banks, you re-regulate the banks to buy a lot more duration and then offer them swap lines for liquidity in case they need it. That's just QE. That's kind of like when you cosign a loan for your kid, it ain't your kid taking out the loan, it's you, right? So, the swap lines to supply liquidity to any holder of long-term treasuries means the actual holder is the Treasury of the Fed.
03:02 Okay, that's the long end. So the short end you could you cut rates and also shift issuance forward and I think that's part of the plan including for stable coins. I think ideally Bessent would love to issue a bunch of T bills backed by stable coins or stable coins backed by T bills and then he could cut the rates on them to basically nothing and voila.
03:25 Well again that's fine. It would mechanically work and that is a very close relative of basically direct money financing of what is now a two trillion dollar and rising deficit. And that then sort of and this is the part where I consistently see policy makers and a lot of investors not spend enough time with the second and third derivatives.
03:51 They just look at okay well if we cut rates at the front end and we back it with T bills and we re-regulate banks at the long end and then we provide some sort of backstop and then the banks won't cut lending to the real economy to buy the treasuries they can lend to the real economy and the investor or and buy treasuries and maybe the government will back up with swap lines and then now we have the problem fixed and yeah nominally but now let's talk through the second and third derivatives.
04:17 Your money financing stuff at the front end. That's inflationary. Boom. Inflation's going to rise. You're basically doing QE at the long end just through the banks. That's inflationary. It's you're gonna have inflation rise. And so you're going to start having hot prints and now you're going to have more upward pressure on the long end.
04:34 You're going to have maybe more desire to for people to buy at the short end. But again, now there's pressure to raise rates. And so at the end of the day, it's all fine. It can all be done. It'll work. But it's basically just what they did during COVID and it comes out in the currency. It's really good for gold.
04:56 Should eventually really be good for Bitcoin. It's good for stocks. It's not good for political stability in this country. It's going to asset prices up, inflation up for necessities. That's sort of in the cake at this point. And so that's the challenge of doing this. And austerity is not an option.
05:17 You're not really the only form of austerity you can implement is cutting rates to near zero and financing at the front end. That's technically austerity because it's going to cut your deficit a lot. But that's a currency issue. And that's fine. And I think that's what gold is starting to sniff back out particularly in the last 10 days.
05:33 >> Okay. So that's interesting. So a few dynamics here. The dollar has been strong in 2026. And that's kind of counterintuitive because what's going on in the Middle East should not really be dollar positive, at least not in the long term in my opinion. There's a lot of reasons why what's happening and what appears to be the resolution if we can say that is actually probably a dollar negative because the US Navy is no longer the supreme superpower that it once was perceived to be and yeah I just I think it's going to encourage
06:13 even more diversification away from the dollar as a reserve currency. So that's number one. Why has the dollar been so strong in 2026? And does the Fed actually really want a strong dollar? >> I think the dollar's been strong in 2026 in two things. Number one, flight to safety in a geopolitical issue, right? Missiles flying around in the Middle East.
06:44 There's a lot of Middle East capital. Can't be in the Middle East. Europe, eh, UK maybe, Hong Kong, if you look at Hong Kong, Singapore, there's been capital that have flown there. So you've had some capital flow benefit. You've also had Warsh come in and be widely perceived to be a hawk, which is interesting.
07:08 It's anytime I get every I see something happen and I get basically 30 versions of the same thing said about it. You know, that's usually your first that's usually your first clue that you're someone's attempting to propagandize you. And in this case, it's Warsh is a hawk. Warsh is going to be a hawk. And I think I in fairness to him, I do think this gets to the point of I think there's still an ongoing sort of civil war within policy circles in Washington around retaining the old status quo system of Wall Street dominance, dollar dominance,
07:43 financialized economy relative to the defense and intelligence circles that realize we can no longer make our own military without China, which is a problem. And therefore we need a much weaker dollar. And so I think through the first part I think through the first part of the fir of the second Trump term or presidency excuse me dollar was extremely weak and especially extremely weak against gold which that's the other thing is in a the increasingly multi-polar multicurrency system that we have price oil outside the dollar price
08:22 commodities outside the dollar net settle in gold which China is sponsoring Russia is helping as that system gains traction, gold is going to increasingly be the reference point for every currency. And so, gold going from 5,000 to 4,000, that's dollar positive in a multicurrency system world.
08:46 And so, there's been multiple different factors that have supported the dollar. And there have been a lot of people kind of laughing at the gold bugs and haha, see, yeah we're going to bring back the real reserve asset, Treasury bonds. And everyone was laughing till 10 days ago and all of a sudden it's like wait what happened? You know J Japan now all of a sudden has an issue partly due to the war their trade balance and they face the choice which we've been harping on for years which is nobody is short dollars. Like nobody's short dollars.
09:16 They are on one hand they're short dollars. They've borrowed 13 to 14 trillion in dollar denominated debt. There's some big Euro dollar balance out there. Sure. And they also have $60 trillion in dollar denominated assets on a gross basis and probably 20 trillion in 25 trillion in net assets including $9.5 trillion in treasuries.
09:38 And as we've said ad nauseam over and over and over nobody's short dollars. So if the dollar gets too strong and the dollar can get too strong one of two ways. People need commodities priced in dollars, Japan, oil, commodities, etc. Or they need dollars to service or defend their currency, Japan.
09:58 They're going to sell treasuries. And that's we've seen that play out multiple times just in the first half of this year. And we've seen the reaction from Bessent the same as it always is. He's the same. It's the old Dennis Green meme, right, from the Cardinals 18 years ago.
10:16 You know, they are who they thought. They are who we thought they were. He given the choice between letting Treasury bond yields rise to their level as Japan sold them down to raise dollars to defend the yen and stepping up with swap lines and dollar liquidity. What did Bessent do? He did exactly what Powell did, exactly what Yellen did. He did what they all did.
10:40 And Warsh, for his part in his speech or his congressional appearance two or three weeks ago, said, "Look, we're I'm going to I'm going to be hands off unless something there's a crisis and then I need to establish a fair price for treasuries, >> I for markets or for assets.
10:58 " He was talking about treasuries. >> Same. He's saying they're going to do the same thing. So, I think the dollar has been strong for those facets, and I think they're now realizing, uh-oh, okay, this isn't working. And so, I think last week, 10 days ago, with these interventions, I think are a very big turning point where the perception, the propaganda that Warsh is a hawk is in the process of being thrown in the trash.
11:26 And I think that's why gold's up 14% in 5 days. Everyone's going, I believed that Warsh, I believed the propaganda. Warsh is a hawk. He's going to strengthen the dollar. And it was Lucy in the football. And it's easy to predict because the fiscal math doesn't math. Like, you can't have a strong dollar that doesn't blow up the fiscal math increasingly quickly.
11:47 And it started to do it through Japan this time. And so that's where we are. >> Yeah, I think that's really well said. And so there is a big turning point here in the last two to three weeks. There's been several notable events. I think the first one that stood out to me is with the situation in the Middle East.
12:11 The last air strikes, the last weekend where the US hit hard was about three weeks ago and there's been threats, there's been talk, there's been truths since then. But there's been no action. And when I look at the Treasury yield curve and the yield on the 10-year, I noticed that like three or so weeks ago, 10 year was around 4.
12:39 6% and then it edged up at the end of last month. That hit 4.7 and then there was backing down from this threat of hitting all the energy infrastructure because that would have obviously really unleashed Pandora's box because then IRGC will hit the Saudi oil infrastructure and then we're in a real mess, right? And then the 10 year is going to go to 6% and everything's going to go unhinged, right? So probably Warsh had a conversation with the president at some point at the end of last month and said, "Hey, it's probably not a good idea to do what you're thinking about
13:12 doing." So that's the first thing. And then as you said, this yen intervention and people get, oh, okay, this is stealth yield curve control. And they're probably going to do more interventions because this yen situation is not over. >> No. No. Oh, and practically speaking, the 10 year never would have gone to six.
13:34 It would have gone to five and then they would have come in and they would have started buying 10 years one way or another. They would have started they would go into something much more akin. It wouldn't be explicit yield curve control, but they would have to do something. And they would, right, Bess or not Bessent, but Warsh just said that in his congressional testimony three weeks ago, I'm going to have to set a fair price for them for assets in a crisis.
13:56 He's going to buy them at what he deems to be a fair price. That's fine. The release valve would be the dollar would be gold, bitcoin, stocks, inflation and political stability on a lag and yeah, I think you're right that we've been we have been repeatedly saying put it on X again yesterday or two days ago, the report we wrote on March 3rd.
14:21 This war is going to last a lot longer than people think, not 3 to four weeks and the Iranians don't have to beat the US military even if they could. They just need to beat the US Treasury market. 10-year Treasury yield was at 3.94% when we bombed Iran on February 28th. We started and now it's 4.
14:40 7 and every time and that they've had to shift the yield up, right? For a while it was 4.4%. Through April, every time it hit 4.4, Trump backed off. And now to their credit, they backed up 4.6, 4.7, but that's not a sign of strength. That's, oh god, we can't defend that level without inflation picking up. We need to defend a higher level.
14:58 So now they're defending a higher level which is fine. But they show they showed their hand and that doesn't even get into the actual mechanics of warfare which is there was an article or there was a claim made by the IRGC yesterday that basically or two days ago that hey we can produce these offensive weapons faster than the enemy can produce defensive weapons.
15:24 And so we're just going to keep lobbing this stuff over from time to time until they leave. Which is interesting because I heard that exact same thing from a US source that's pretty well placed three months ago. The US has known this the whole time. So when you look at the stories of Dan Caine publicly released trying to talk Trump down, when you see the stories of numerous generals in the Pentagon advising Trump against doing this that have come out in the last two weeks, that's what they were looking at. Like there is a very
16:00 scientific aspect of warfare. And I don't profess to be an expert in all of it. I've just had a few glimpses into that world of how that worked. But there is a very mechanical aspect like it's how the allies were planning for the post-war monetary system by 1943. You calculate how many factories Germany had.
16:23 You calculate how many factories you have. You calculate the bombing runs. You make some adjustment for casualties on your side hits and hit effectiveness. And by 1944 the German factory base is dead. And then it's just how many more people do you need to kill until you take the country over? It's actually depressingly mechanical.
16:45 The same thing was happening here 3 months ago. They're like, "Okay, we know our factory base does this. We know we can produce missiles at this rate, and if we know the Iranians have this, and so as they were getting updates of like, oh, we thought we hit 90%, we only hit 30%. We only hit 10%. Oh, they still have 70% of their offensive weapons.
17:06 Oh, oh, then you can see adjustments if you know what you're looking for in the strategy since then. And so that then factors into the whole dynamic of sir, we cannot defend these counter strikes at the same rate that we were defending them three months ago. Mhm. >> And every missile we fire to defend, they can make them faster than we can make them.
17:31 >> And so we're heading toward a point where we can't defend them at all, Mr. President. And once we hit that point, sir, you will have completely destroyed the credibility of the US defense umbrella >> Around the world. Sir, so what do you want to do? And that's where we are.
17:51 And people don't like to talk about it, but that's where we are. And that has yield curve implications, right? Because now you're like, we'll buy our bonds. Well, as a friend of mine in the military once told me like 20 years ago, he's since retired. He's a senior officer. He goes, look, one of the things we talk about at some of these military colleges, the defense war war colleges, is something you guys on Wall Street don't talk about, which is part of the military's job is to be the muscle to threaten to buy to for people to buy treasuries to
18:18 support the treasury market. He told me that said they discussed it in military warfare classes 20 years ago. Okay, great. That's real politic. Well, use that lens and overlay what we just talked about. If the defense umbrella has no ability to be an umbrella anymore because the opponent can make things faster than we can and so we can't defend them.
18:44 Guess what that implies for yields, for dollar, for a lot of things. And it's part of why I thought this whole war was foolish from the start. But maybe it's maybe this is all the plan and it's a part of a great reset. I don't know. Then we get to that point, we do some great reset. There's those that say this is the case.
19:02 Maybe, but who knows? But I do think that the what you described on the yield side is supported by what's actually happening and in terms of the robustness of the relative replenishment rates and the ability to just sort of math this thing out. >> So the math doesn't work on the fiscal side of things here in the US.
19:29 the math doesn't work in terms of the offensive military side of things in the Middle East and the math doesn't work in Japan either for their fiscal situation and their sovereign debt crisis. So, there's a lot of math that's not working around the world. That seems to me as this math situation continues to accelerate, the numbers get larger and more difficult to digest there.
19:56 There's got to be a breaking point coming up here at some point. What's your thoughts in terms of how this situation evolves let's say for the rest of the year and into 2027? Is the breaking point close enough that it could be next year or is this still a few years out? >> Well, I think it's important to define breaking point within that which is my view of breaking point.
20:19 We may have already started to see it with this whole soft form yield curve control episode of the last 10 days particularly given how markets are reacting which is at 10 years basically right back to where it was the yen's already retraced over half of the move the strengthening move and is rewakening to me I think we're probably likely to continue to get fits and starts through the rest of this year to this whole thing of it. And it'll be more propagandization.
20:52 Warsh talked about inflation two weeks ago, right? Like inflation basically is what I say it is. That's the first step in propagandizing this. He knows he's a smart man. He knows what I just laid out. Inflation's going higher. It has to. But he'll just lie about it, which is fine.
21:11 This is what happens in these situations. I think you'll then have other interventions and then they'll kind of back off and like okay that's it and now we're hawks again and it's a management process and at the same time you saw around mid year Trump came out and highlighted hey I met with NATO we're all going to spend a bunch on military great okay so within like a fiveday period we had the US the UK Germany Korea and Japan all come out and say we're going to borrow more money and spend it on the military.
21:47 Okay, that's basically just defense stimmies especially when the US is supplying liquidity to sort of prevent higher inflation from driving bond yields to a point or driving the dollar or these other currencies down to versus the dollar to a point where they have to sell treasuries. So this is basically just a sort of much more circular defense stimmie financed by the US by dollar liquidity injections like we saw during COVID and we know how that played out from an inflation and risk and gold and bitcoin standpoint.
22:19 But I also think there's a I think a real genius to it which is if the US, UK, Germany, Japan and Korea all do this at the same time then all their currencies against each other all debase against gold and against stocks and against inflation but not against each other. And so you will get, in my opinion, higher inflation that is said to not be higher inflation.
22:46 And you'll get a weaker dollar that it will look like on our screens is not a weaker dollar against all the fiat things. And anybody in the establishment who mentions the fact that gold is 6,000 or 7,000 bucks will be ostracized. And so only people like me in Cleveland who are not part of the establishment will point out that this is how and it look it makes sense.
23:09 It's I don't say this like, "Oh, they shouldn't do this." They're stuck. So, they got to do something. And if I'm in their shoes, they're doing exactly what I would do. So, I think there is, hey, respect. It's what I would do. And I know what to do with that, right? >> So, dollar yen, this is very interesting.
23:31 So, they intervene up near 163 164 area, which was like a multi-year high. There are some articles I've read with various sources not named in the articles that said that 160 is the level where if they get back if it gets back there which by the way we're at 159.25 so we're almost back to 160 they will intervene again.
23:55 Do you think that's right? That basically the market's just going to push this thing to where they have to do multiple interventions and just sort of test how much they're willing to actually do here. >> Yeah, I think it is because nothing's changed with the underlying, right? Japan has been pushed into a current account deficit by our adventure in the Middle East. Oil's back over 80.
24:21 Japan is short dollar oil by nature of their economy. They're ramping up their economy. They're going to need to produce more. That means they need to import more oil, which translates to importing more dollars, which translates to inflation, which translate to selling of their bond market, selling other currency.
24:36 Like nothing's changed. you just had a bunch of liquidity come in and try to push a level down artificially. And so, yeah, I absolutely think the market's going to push back to where it was. And whether it's 160 or 161 or 164, I don't know. But they're going to have to do the same thing over again.
24:54 And I think it'll be really interesting to me to see the reaction to markets to that because there has been this aura around Bessent this aura around Warsh that essentially they're Wall Street's guys. They're not going to do what Powell did. They're not going to do what Yellen did. They're practitioners. They've been in markets.
25:13 They're Druckenmiller's guys. They're Soros's guys. They're going to have to do the same stuff because the math doesn't math. And so I think the reaction will be very interesting to see markets at that point. Like I think you could get equities take off in dollar terms on that. In the US I think you could see gold really take off.
25:34 And so I think you'll actually see equities continue to decline in gold terms which has resumed over the last 10 days at least from look equities are still down almost 25% since since one Q since the Feds started hiking rates in early 2022. So, I think we get back to that debasement trade, and it's what they need.
25:55 I think we're going to look back in a year and go, "What idiot believe that the debasement trade was over just because you had a younger, better looking nicerhaired, richer guy at maybe he's not richer. I don't know. His father's certainly richer, but his father-in-law, but at the Fed, like what idiot believe that? Why would you believe that knowing the fiscal situation?" And it just reminds me so much of the DOGE DOGE situation.
26:21 Everyone now is like, "Oh, DOGE, how stupid was that?" But do you remember when they rolled it out, it was like, "Oh, >> Right. Everyone believes I'm like gold sold six weeks." Yeah. Yeah. >> Oh, are you high? Like the math like and it's every bit as obvious as like the to me that the math doesn't math on the fiscal side and that Warsh and Bessent have no choice and especially since the Iran war.
26:43 That's the other thing. Like if we didn't do the Iran war, they would have had a lot more runway until it was proven the emperor had no clothing. The two the two emperors have no clothing in Bessent and Warsh. The Iran war thing is such a forcing function. It's such a forcing function. And that's I can't tell. People keep asking is it 5D chess? Is it a reset? Is it Trump's hubris? Or is Trump controlled? And I can't tell.
27:10 My base case is it's Trump's hubris. He got taken in by how easy Venezuela was. But who knows? But that when they have to revisit that, I'm going to be less interested in the actual event of, oh, hey, they're intervening in the end again and much more interested to see the reaction to the markets of because I think that'll be enough where everyone will be like, I got fooled again.
27:36 I can't believe I bought into that nonsense. And I think you could see equities rip, gold really rip, and I think it could be good for Bitcoin. We'll see. >> Yeah. So, so, so the Iran war was a forcing function that was actually very negative for multiple areas of the fiscal situation in the US, the economy, and really testing markets by pushing the price of oil up so much for an extended period of time that did a lot of damage to smaller economies and economies that are more dependent on their big imports of oil like India,
28:20 Japanese, etc., etc. China's handled it reasonably well, but I think they're also kind of limited in how long they could handle high oil prices and having to deal with this flow from Iran being cut off or limited. And it also pushed the dollar higher, which actually with everything the US wants to do in terms of rebuilding its manufacturing base and balance its trade deficits more.
28:58 That's not good either. So it seems like this whole adventure for the last five months, not only has it achieved nothing in terms of the situation in the Middle East, it's done a lot of damage in a bunch of areas. So it seems to me like the white flag has sort of been waved at this point. It's all rhetoric.
29:21 As you said, the math just doesn't work. By continuing down this path, it's treacherous at best. And potentially catastrophic at worst. So I feel like especially with the midterms like the white flag is going to be waved and now the situation for gold is actually really multi-pronged. There's multi-prong tailwinds here as Warsh sort of starts to reveal his true dovish colors and maybe does does does the Jackson Hole speech sort of send this gold trade to the next level? >> Possibly. That there have been
30:04 numerous times obviously in the last 15 or 16 years, right, where Jackson Hole has been a big venue for releasing major pivot points in terms of policy dating back to the 2010 one I would argue with Bernanke and where he kind of started laying out QE2 as a possibility. I said before I couldn't tell and people have asked me what is it? Is it Trump's hubris? Is it 5D chess or is Trump controlled? That white flag point you may I think is going to be very instructive. If we don't get the
30:41 white flag we can eliminate hubris right now. Now, we can say going forward, we can now say either it's 5D chess or he's controlled if he because strategically it's not working for the US. And I agree China has a finite runway and that it's ultimately a pain contest. However, we've already seen China has a greater ability to take pain than basically anybody else other than maybe the US.
31:12 Certainly more than I thought, but not more than the and a greater ability to take pain than the Treasury market. They've absolutely shown that multiple times. And they still haven't even really had to make big adjustments. Like people over there aren't even talking about this war. They're like they like other than like what is it with you Americans in the Middle East? Like why do you keep doing this to yourselves, you idiots? They don't really they don't really say anything.
31:38 And so there's things they can do, right? You know, what do we hear about all the time? Oh, there's all this overp production of electric cars. Well, take a look at the electric car penetration of China. It's still relatively low. You know, this thing goes on, they can pretty easily go, okay. In four weeks time, every internal combustion engine passenger vehicle in China must be turned in and exchanged for a EV.
32:08 What's to stop them from doing that? Boom. Oil usage down another two million barrels a day. Check to you, Washington. I think they could absolutely do that. I've been told by people who know the country far better than me that they could do that. So there's they can't go forever, but again, it's just a pain contest.
32:30 They can go longer in Japan, obviously. They can go longer in the US Treasury market, obviously. They can go longer in Europe. And so here we are. So it is a strategic they we do need I agree with you that we need to wave the white flag. And so that is a that is a sort of reference point that we can go back to if we need to.
32:51 And it becomes increasingly obvious and we continue to see these leaks to the mainstream media of, hey, this isn't going well. That's not going well. The general said this and Trump didn't listen and we still don't raise the right flag ahead of these midterms. Then you go, "Okay, this wasn't Trump's hubris because he would back off.
33:08 This is Trump's controlled or this is there's some 5D chess play here that has yet to has yet to occur." >> Yeah. I feel like they want to actually have us think there's a 5D chess move here. They're trying to figure out the 5D chess move, but I'm not sure there actually is one.
33:28 But you're right, it'll be interesting to see if the white flag is and obviously it's not going to be an overt white flag. It's going to be a sort of a subtle one where we're going to have to be like, okay, it's actually it's actually over now, but they're not going to say anything. >> We want peace with honor. I am not a crook. The old Vietnam Nixon.
33:51 >> Exactly. Nixon. Yeah. So there was a White House press conference last week about mining, hard rock mining. The White House invited all these executives from the mining industry, some of the biggest mining companies in the US as well as the largest ones in the world Rio Tinto, Newmont, Freeport, etc., etc.
34:16 And a bunch of announcements came of it, including some investments in different projects and different companies, but also a big push for more education about mining and exploration for minerals, right? And this is an area that has been sorely lacking in the United States and maybe in the West in general for like 50 years.
34:42 We're so far behind China and other countries in Africa quite frankly when it comes to this area. And this is another domain where this adventure in the Middle East over the last five months has shown how our cover is bare in terms of the supply chain. We don't have the raw materials. We don't have the processing infrastructure to manufacture weapons whether it's you know missiles or fighter jets or tanks or you know where we are dependent on China quite frankly and other countries too but we just don't have it
35:25 here. Now we have the AI and data center boom which is really accelerating that's also very energy intensive and when there's a lot of energy involved you need metals you need copper you need aluminum you need scandium and rare earths right and so I think that what we're seeing is that something is coming it's coming it's come to a head and this press conference really you know highlighted it but we're still so far behind right and even if a bunch of investments are are made over the next couple of years frankly we don't
36:04 have the talent even with AI being very helpful in a lot of things and maybe cutting the amount of time involved in certain jobs we still just don't have the talent in the mining industry so I'm not sure how this data center buildout boom can even happen. What's your take on that? >> Yeah, I mean I agree there's 40 years of moving away from manufacturing and mining to financialization.
36:35 There's just not the bench depth there. There's not the bench at all. And the education side is something I've talked about in numerous different podcasts, etc., as something that needs to happen. So, it's encouraging to see now we're spending $100 million on education over undefined period. And that compares to $37 billion in Iran in four months, right? So not sure by in a perfect world, we spend $37 billion on education and $100 million on Iran.
37:04 But that's the world we hope for, not the world as it is. The data center stuff, I agree. You're going to get you're ultimately going to get constrained. That's going to or you're going to hit the constraint. That is the constraint. Now, I don't know where that constraint is in terms of the physical world, the grid capacity, etc.
37:32 I agree it's not happening fast enough. I've heard so many times people say, "We just need to go to wartime footing." Well, great. Let's go to wartime footing like 1940. Great. Here's what wartime footing was in 1940. We had a 25% of GDP fiscal deficit. Okay, we're at six now. So, you'd have to we had two trillion's at six.
37:54 So, we'd have to ramp up 4x. We'd have to run 8 trillion dollar deficits. Okay. To be like 1940, the Fed bought all of it basically. The Fed's balance sheet grew 10x in three years during World War II. Mostly at the front end, mostly cash financed basically, right? At 3/8 of a percent.
38:19 So you're going to have the Fed finance $8 trillion a year at 3/8 of a percent in the T-bill markets. What do you think inflation's going to do? Oh doggy, you're talking about 30, 40, 50% inflation for the next three, four, five years. Now, which part of the long end of the curve do you want to own? Where do mortgages trade at? What happens to the entire US banking system who holds bonds as collateral? What happens to the real economy that's priced off the 10-year? Is the 10-year still going to be 4.
38:51 7 when inflation's running 30, 40, 50%. No, you got to put in capital controls, which is what they did there. And also to fight the inflation, the highest marginal tax rate in the United States during World War II was over 90% 90%. Still want to go to wartime footing? >> Yeah, that's going to cause a stock market crash. You'd crash the stock market.
39:13 Well, you'd crash the stock market and then it would basically go to the moon because people would you'd be running. It's one of the only inflation hedges, but it would certainly it would crash and flatline in gold terms. But you're going to have to put in capital controls, too. And capital controls, strict capital controls, ends the dollar's reserve status to >> Prevent the crash.
39:34 You literally have to tell everyone in the world, hey, you can't take your money out. So that's your big reset right there. It's forced. >> That's and when you then apply it to this, hey, we're going to reshore in 5 to 10 years, you guys go, it's a pipe dream. It's a freaking pipe dream. Maybe maybe maybe 10 to 15 best case.
39:53 Probably more like 20. And that's fine to the extent that it probably prevents these neocons from leading us into a stupid World War II. But that's the reality of anytime I see someone say, "Oh, we're just go to a wartime footing like 1940." Like, yeah. And even if you make allowances to your point, I think it's a great point about AI it's the equivalent of, hey give an engineer a slide rule in 1949 and look that it's like six engineers, right? You give give an engineer a bunch of AI, it
40:22 can happen faster, a lot faster. But again, the constraint is and oh by the way, China's got AI too. And so you're competing against someone who maybe doesn't have quite as good a frontier models, but they are very far ahead of us in installed base of just actual production capacity. >> Yeah.
40:54 Yeah. China has AI too and in mining. So obviously like the artificial intelligence helps with certain projects making them happen much faster. It just it helps in a lot of different areas. But to actually construct a large new mine, well, you need a lot of heavy equipment. You need a lot of human beings to do all these tasks, which unfortunately we're not quite at the robot stage yet to be able to do all these very specific tasks.
41:25 And these are massive operations, right? And so to construct a large mine you're talking about at least a thousand people on site for 12 to 18 months full-time. And then to operate the mine, that's a whole another lift, right? And so and when you start to look at like the copper situation and you start to look at the numbers and the forecasts for consumption globally for AI consumption for data center growth and then all the spending on you know military you know equipment like we need to build 50
42:01 mega copper mines in the next 20 years and I mean mega like the biggest ones in the world and I can tell you somebody in the mining industry that there aren't actually 50 deposits that are there available right now. So, we still have to find a bunch more and then the ones we do have need to get permitted and financed and then all that stuff.
42:27 And so, it's basically it's an impossible task. At this point despite the rhetoric and the White House press conference, we're facing an impossible task. So, something's not going to happen the way that we think it is, whether it's the data center boom or whatever.
42:47 So something's not working here. And it's it speaks to another reason why I was so frustrated with frustrated with this Iran war, which is the reason China caught up to us so easily in 20 years was because we were distracted from '02 to 2020 with this nonsense in the Middle East. And I was as angry as anybody after 9/11.
43:12 And all of that. And I remember having a conversation at a private conference with another call it former military guy and executive corporate executive. He goes, "Look, in I think it was fall of '02, we caught like 40,000 Taliban in the open in some valley in Afghanistan and we called in B-52s and we basically killed them all.
43:39 " He goes, "In a perfect world, we publicize that and we say that's it. Don't do it again. We're going home." And now we're pulling back and we're reinvesting. And instead, and the Chinese have said this, you can read something called the Longer Telegram by a former senior official of a US ally.
44:03 to the Chinese were said that they had a unique window of opportunity while we were distracted in the Middle East for 20 years. And the point is that we should have been doing all this metals work from '02 through 2022. And the Chinese were particularly after '08. After '08 they're like wait you're just going to print the money for this stuff when you get in trouble okay and they went around the world and you can see in 2018 by 2018 there were trillions in what they called opaque lending former World Bank chief economist Carmen
44:42 Reinhart opaque Chinese lending along the belt road here we'll lend you dollars and we'll give you develop and securing these supplies dirt cheap dirt cheap because as you just said if something's impossible, you know what the dollar value of 50 major copper mines is it's a fugazi.
45:06 It's ephemeral. It's nothing. The dollar can't buy you them. The dollar has hyperinflated against the major copper mines number five through number 50 that we need. There is no amount of dollars that can get you them because they don't exist. And the Chinese apparently someone understood that while the Americans were chasing dudes and flip-flops around Afghanistan and Iraq.
45:33 And again, does this make me anti-American? No. It makes me practical in that when you do dumb stuff for 20 years, you don't just say, "Okay, I'm done doing dumb stuff now." And there not be a hangover, not be a payback, not be a catchup period. And people it's both a testament to the American spirit and a frustration is like, "Okay, we're done being stupid now. Great.
45:59 We're gonna go right back." Like, "No, no, no, no, no, no, no. You don't get to drink 16 bottles of Jack and be like, okay, I'm going to go run a marathon now." Woo. No. You're like, "Oh my god." You're going to be out for a month if you're not in the freaking hospital. And so that's it's a missed opportunity.
46:21 We can I can joke about it, but to your point, this is where the real rubber meets the road. And then we tie this all back. Say, okay, well, Luke, you always try to bring back how can I make money with this? How do I position for investors? There is no way they can do this AI buildout, infrastructure build out, reshore without it being massively inflationary.
46:44 The bond market has to basically go down. So, so long-term bonds in the United States are down 90% against gold in the last 10 years. They're going to have to go down at least 99% more against gold over the next 10 to 20 years if we continue to try to reshore and build. And I think we need to I think we're going to and that's fine.
47:10 Like you just got to load up the suckers holding the stuff and then do it. >> Is there any way the US can grow its way out of this situation? I we've talked about this. I've heard you talked about it, but just to reinforce the point, the Treasury Secretary earlier in the year was making comments like you're going to see the GDP growth is 8%.
47:32 We're going to have a boom. This is going to be an incredible American economy. 8% GDP growth. So they are smoking some opium there that there's going to be a growth boom that's going to grow up our way out of this debt quagmire and fund all the entitlement spending coming down the pike. Is there any way this can happen? Yes.
47:59 You really can kind of look back and just see what's most likely, right? So you would need an AI productivity boom or something like it but it cannot drive any layoffs in the short run right unemployment goes up you know 5%. The entire levered system comes unwound. Okay so we need to have a productivity boom where nobody loses their job.
48:28 Well that's a contradiction. That's probably not going to happen. If you look on the entitlement side, if you look at last 6 months of life is like 30 or 40% of spending. So if something happened where half the boomers were dead by next Friday all at once really quickly by some disease or something then yeah in theory that could happen.
49:00 That's awful to even think about. But I'm just looking at it as objectively as like okay if you reduced entitlement outlays by 30 40 50% by next Friday now you can really grow out of it right so again I'm not advocating that I think the odds of that are nothing but I also want to keep my mind open to where are the different levers that they have in their hands frighteningly to grow out of it failing that yeah you can grow out of it but again you go back to Bessent's point 8% who's going to hold bonds at four
49:39 if you're growing eight nominal like if it's all eight 8% is all real and there's zero inflation like okay I guess but even then yields are going to go up I don't want to own I don't own bonds at four when growth's eight bonds at two when growth's eight and that then informed MS like yeah they can grow out of it.
50:03 They just have to do some form of yield curve control and let the currency take the hit. So you'll have nominal growth but in gold terms you won't have any growth. You'll have you'll it'll be austerity in gold terms it'll be growth in dollar terms and once you do that's how then that's how you can get out of it.
50:23 >> Okay final question of two-parter. Obviously I know you're a gold bull. So first of all, would you prefer to own a diversified portfolio of gold miners like the large cap ones or gold itself or both? And how would you weight each? And is the bottom in for gold in 2026 at this point in your opinion? >> I would prefer to own gold bullion.
50:51 To the miners, I own both. It's probably an 80/20 split. Maybe it's a 75/25 split. Bullion to miners and I own it in physical form in private vaults at different locations almost all in the US, a little bit in Switzerland. And the reason is I don't want to be wrong for the right reason.
51:16 In other words, I think gold's going higher. If gold's going back into the system, there are risks of nationalization of assets. We've already seen that. Heck, the United States is threatening to do it or has done it. And so I would hate to be Now, that's not to say I think anyone's going to nationalize miners for less than they're trading at, per se, but I simply think that over the full course of this cycle on a riskadjusted basis, I think gold bullion will do very well relative to miners.
51:46 And so I would rather just take the risk of that out of legislation, right? This a lot. People say, "Oh, what if they grab the gold?" Well, it's a lot easier to grab gold in the ground than it is to go door to door asking people, "Take take me to your private vault over there or whatever, right? That's dangerous.
52:07 And do I think the bottom is in for gold this year? Yeah, I do. >> 5,000 this year again? >> Yeah, I do think it'll get back to 5,000. Yeah, I do. They're stuck. Like we were talking about before, they're going to have to intervene again.
52:33 Yen, treasuries, like the math is the math. >> Yeah, the math is the math. This has been a very strong leg up from the summer low, the test, the retests of 4,000, multiple retests, all successful, and now we're back almost at 4,500. So it does look quite promising. Luke, thank you so much for your time again and I look forward to speaking again later this year. Cheers.
52:59 >> Thank you very much for having me back on, Robert. It was great talking with you.