It's All About Liquids & Liquidity
Gold, Liquidity & Liquid itself | Crown Compendium VIII
An informal dispatch on markets, money and my musings. For those who want to go deeper, the links are at the bottom.
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Market Musings
The Big Story: Liquidity Is Tightening (Again)
If there is one thread tying everything together this week, it’s this:
Liquidity in the west is drying up.
It’s not collapsing, but tightening at the margin.
We’ve got:
Sticky inflation
A hesitant Fed
Ongoing QT
A quietly strengthening dollar
It’s the kind of environment where asset prices could gap down as outflows/redemptions occur due to the increased marginal dollar coming out of capital markets and into the ‘real economy’ spending.
This dynamic is discussed at length in my latest interview with Michael Howell
Gold
Gold’s price declined sharply this week (11%), the worst weekly sell off in years. To paraphrase a Bessent-quote, this occurred due to there being more sellers than buyers, with over $1billion in combined outflows in a single day, March 19, from the major ETFS: GLD and IAU.
My early thoughts are that this looks like profit taking. Flow data suggest that investors were de-grossing gold exposure after an earlier run-up, not abandoning the asset class structurally. Remarkably, despite the sharp uptick in recent outflows, the gold price is still positive YTD and now the RSI is in oversold territory.
Capital flowed across to dollar denominated instruments and now the US 10yr yield is up 4.5% and the DXY; a measure of the dollar’s relative strength is also on the rise.
My take: price action is best understood as a cross-asset liquidation and profit-taking after 9 straight months of net inflows. Gold entered the week after a very strong run and once oil-driven inflation fears pushed yields higher larger players considered rebalancing.
Given liquidity in the west is drying up on an ever expanding numerator of aggregate debt level precisely at a time where fiscal deficits are assured to blow out even further due to the current conflict it’s only a matter of time being monetary policy is adapted to compensate. I expect more monetary easing to come, be it in 6,12,18 months and as that liquidity enters the system I expect net inflows to resume in gold and BTC vehicles. Ad interim of course, there’s likely some further downside.
I am positioning by looking at various options on acquiring my favourite precious metals royalties, which have sold off recently - in the case of GROY to the tune of 22%.
TRK Remarks
Water remains on my mind as my number one growth commodity. I’ve almost finished a 14 page research report which will be made available to subscribers only. The first issue is a deep dive on the hydro-requirements of Data centres and the associated investment implications.
Here’s a teaser:
“ A 1 GW hyperscale campus in the Permian Basin is not a 10× scale-up of a conventional data centre. It is a water event of regional significance, consuming more fresh water equivalent per day than the entire City of Midland's municipal supply..”
My modelling shows that the necessary infrastructure for the 1GW prototype DC will need the equivalent of 202 million barrels of water per year to operate at nameplate capacity which, at going rates estimated in the basin implies $428 million in annual running costs for the water alone.
Wishing you all the best.
— Benjamin
The Royalty King
Disclaimer: This publication is intended solely for documenting my personal journey with trading and investments for income and travel purposes. I am not a certified financial advisor nor am I a financial professional and none of the content provided should be construed as investment advice. It is essential to conduct your own thorough research and consult a registered financial service provider for appropriate guidance. I cannot guarantee the accuracy or completeness of the information presented. Any actions taken based on the information shared in any of my work are done at your own risk and discretion. Past performance is not indicative of future results. All investing involves risk, including the potential loss of principal. There is no guarantee that any investment strategy, including those discussed here, will achieve its objectives or generate profits. You should carefully consider your investment objectives, risk tolerance, and financial situation before making any investment decisions.
PS: Oh, and don’t forget to check out my other publication Machina Capitalis , think of it as my live trade journal operating an income portfolio of options and exotic trades.
Also have you had any success getting selling puts on GROY? Spreads seems all over the place. Or have you just DCA into GROY?
Great interview with Mike Howell. Love the point of long term trend versus the cycles within that trend. Helping me ride the wave in gold right now.
Rickson? Are you a bjj guy?