SPEAKER_00 0:00

The views expressed in this video are those of the panelists and do not necessarily reflect the views of U.S. Money Reserve.

SPEAKER_01 0:10

Welcome to America's Gold Authority Podcast. My name is Mike Barnes. Oil prices, the war in Iran, gold prices, they all seem to be connected, but they're like three different pinwheels blowing in different directions every single day. What's going on with that? Let's go to an expert and find out. Philip Deal, the 35th Director of the United States Mint, president of U.S. Money Reserve, joins us today. And Philip, it's just so hard to try and figure out what's going to go on every single day with these prices. Yeah, that's right.

SPEAKER_02 0:40

Well, first of all, you'd be able to predict these prices a lot better if you knew what the White House was going to do and what Iran was going to do in this recurring conflict. I mean, we have seen uh so many stops and starts uh over the course of the war that uh, and we've seen oil prices surge and then retreat based on optimism about the opening of the straits and the ultimate settlement of the war. And so it's just it's been a wild ride, but there are a few things that really we can take from this. Is number one, it used to be that uh gold and the dollar and um and oil prices tended to move together. And we're really seeing that uh these days. And that is, and that's really driven by interest rate hopes and expectations. We all hope, and it is one of the administration's highest priorities, political and economic priorities, is to get interest rates down. We've heard the president talk about that and act on that wish. And the reason for that is because it's so important to stimulating the economy. Lower interest rates are better for everybody. And unless you're uh uh betting on higher interest rates. But for most of us who are taking out loans for mortgages and cars and businesses, then those lower rent interest rates are crucial. And the president knows this, of course, and he's been trying to lower um interest rates, and he's been trying to do it by jawboning the Fed. He now has his own Fed chair in there, and the Fed chair is telling him, well, Mr. President, we we have to fight inflation first. We've got to get inflation under control, and then interest rates can come down. And we've seen an attempt here, and uh several attempts in the last couple years, where the Fed has actually acted to lower interest rates. They lowered the federal funds rates, but the market went the other direction. It raised interest rates on those crucial 10-year treasury notes, which set the mortgage rates and car loans and such. So, really, what we're talking about here is the need for the Fed to establish credibility that it is going to fight inflation, is going to do what it needs to do to fight inflation. And the way you establish that credibility is number one by your words. And uh Chairman Walsh came right out of his first uh uh federal open markets committee, that's the committee that sets rates and made it clear that that is going to be his priority. Uh and markets have taken, you know, taken that as encouragement. Uh, he doesn't have enough of a track record to know how serious he is. Uh, but so far the president has uh voiced support for his chair, even though the chair is talking about not cutting rates, but the even the possibility of raising rates. So anything that comes into the headlines that is encouraging about the prospect for lowering interest rates uh encourages the market and makes that fight against inflation easier.

SPEAKER_01 4:13

I think the hard part for all of us, I'm talking about the entire country right now, is we're not sure what's going to happen each and every day. So as we're looking at our money, looking at our investments, what do I do? If it's short term, I'm not sure what's going on. I think we have to look at long-term investments right now and know what's coming in the lengthy future, not the near future.

SPEAKER_02 4:32

Yeah, that's exactly right, Mike. None of us are trading gold on a day-to-day or month-to-month or even year-to-year basis. That's not what you know, buying and holding uh physical gold is about. And therefore, it's really about that long-term. It's the security, it's really a form of self-insurance that protects you and your assets because there's no counterparty. And by what I mean counterparty is that you're not depending on anybody else's contractual arrangement with you for the value of your investment, uh, like you are with stocks and bonds and real estate and the like. You hold the gold and uh and are not dependent on anybody else fulfilling a contract. That contract is embedded in your gold holdings. So um, so yes, we are we are long-term holders of gold because of the insurance, the wealth insurance, and the appreciation value it offers us. Um and therefore, you know, why worry about what gold is doing on a day-to-day or hourly basis? It's just, and the other thing is if you're buying gold and watching prices to look for the best opportunity, the lowest price, you're in a fool's game. You look for opportunities when gold prices retreat and buy during that opportunity, not at the trying to find the low point. And I tell you what, this is a remarkable opportunity here. We have uh gone into a uh what I definitely believe is a temporary bear market for gold prices. We've seen a big pullback that really has a lot to do about the war, and in most cases, a war would drive people toward buying gold uh because gold is a source of security in economic times, hard economic times, hard uh geopolitical times. But this war is different, and it's different because it when you know our opponent has shut down 20% of the oil markets in the world and uh and has caused tremendous dislocation around the world, not so much here in the US because we are energy independent. In fact, we're an energy exporter. But oil is a unit is a global commodity, and so we've all been hit by the price increase. And so that makes this war really different, the ability of Iran to shut down the straight reform use and choke up off such a large portion of uh oil supplies. And so, really, what we're looking for is we're looking for, uh, and you can follow this on a day-to-day and week and week-to-week basis, and in fact, you can go all the way back to late 19, I mean 2023, and you see uh if you follow the newspapers like I do, whenever there's optimism about rate cuts, gold prices go up. And when there's pessimism about rate cuts, gold prices tend to sag. And obviously, that is not the only, those are not the only factors that are driving gold prices. But right now, um that expectation for interest rates is really a very big factor.

SPEAKER_01 8:33

It has kind of surprised me that oil prices have gone down about 20% in the last month, but gold has stayed fairly steady. It hasn't come back up, had a little bit of a hit last Monday and Tuesday, and then after what President Trump did, it goes back down again. Does that surprise you that that gold is not coming up like oil is going down?

SPEAKER_02 8:52

No, it doesn't really surprise me. I followed the oil markets for a long time when I worked for Senator Lloyd Benson of Texas back 30 years ago. I was his oil and gas fossil fuels energy uh advisor. And uh so I followed this industry for a long time. What happens is you are seeing dramatic price declines uh in oil, but not gasoline so much. I mean, we all have seen that yes, gasoline prices have come down, but not nearly as much as what oil prices have. And the reason for this, there are multiple reasons for this, but one of the big reasons is that the oil prices that you see, the Brent Crude and the West Texas Intermediate, do not reflect the um the fundamentals of what drives supply and demand. Now that sounds funny that that would be the case. What it reflects is expectations for where those fundamentals are going to be in the future. And expectations are often wrong because they're basically predictions. And I believe these expectations are really off. Uh, and I believe that for a couple reasons, and we've actually seen that this week. We saw uh oil prices jump from about $71 a barrel to almost $80 a barrel. So we saw a 10% jump in oil prices this week, just from the president's words that, well, it looks like the uh the uh peace agreement and the and the negotiations are off the table. And we see this all the time. Statements either coming from the White House or actions taken by the Iranians that have moved oil prices. So that doesn't reflect fundamentals, that reflects fear that the expectations are wrong and that maybe those expectations need to be changed. Now, one of the a reason why I believe, a couple reasons why I believe expectations are wrong about oil prices, is number one, no one knows what's going to happen in this war. I mean, anybody who tells you they know is uh pulling wool over your eyes. This is a very volatile situation. And I think the oil markets are really showing an irrational exuberance about the prospect for peace. It's really unknown. This is a really a crapshoot uh given the volatility of the area. The second thing is people are not taking into account that the Strait of Hormuz is not the only bottleneck that has to be dealt with here. Even if you open the Strait of Hormuz totally, there are tremendous bottlenecks in the uh transportation and distribution system of the oil market. For example, uh refining capacity in the world has really, and especially here in the United States, has fallen significantly in recent years. And so once that oil gets, and nobody consumes brought crude oil, it has to be refined into gasoline, diesel, uh, jet fuel, and all the other distillates. So that is a huge bottleneck. And during the fall, just about the time this oil is going to be reaching markets around the world, uh, those refineries have to be shut down for maintenance every year and for the switchover from summer to winter from summer to winter gasoline formulas that are required by law. And so that oil is gonna hit very constrained refining capacity come this fall for several months. And so there, you know, and so there's gonna be, you know, if the strait opens, there's gonna be a lot of oil waiting for refining capacity to open up. And until it does, then uh gasoline prices are gonna stay high, and the inflationary impact of higher oil prices is gonna remain in place even if uh crude oil prices fall.

SPEAKER_01 13:39

Let's look closer at the gasoline and the oil prices. First, I want to talk more about oil because look over the past, well, since January the first, and I've got a graph to show you, and you can explain this more, but it has kind of surprised me with the war in Iran continuing that the price of gold uh of oil has gone down so much.

SPEAKER_02 13:57

Yes, yeah, yeah, that's exactly right. This is this is a cool graph because it shows how from the first of the year, as tensions sort of developed with Iran and there was more talk about the possibility of war, oil prices sort of drifted up until the attack, the US and Israeli attack occurred on February 28th. And at that point, as you might expect, and this is shown on the graph, then crude oil prices exploded upward. And then uh they began to tail off as the rhetoric around the war began to soften a little bit, and then a peace agreement was reached that lasted for about five days, and we've seen how well these ceasefire agreements, that's really what I'd be s ought to be saying, is not a peace agreement, but a ceasefire agreement, and that blew up within a matter of a few days. However, this we didn't see oil prices continue to rise. We saw them flatten out, and then we began to see them fall. And the reason why they were falling, despite the lack of a ceasefire, and despite some pessimism, some considerable pessimism about a peace agreement and continuing conflict, was that the markets became convinced that, okay, we've seen the worst of it, and we're going to eventually get to some kind of a longer-term ceasefire and maybe peace agreement. And we saw those prices really fall pretty dramatically, not as fast, and this is a very historical pattern, that oil prices and gasoline prices go up fast and then they fall slowly. And there are a couple reasons for that we don't need to get into here. Some of them reasonable, some about profit taking. So uh when the opportunity arises, and I think that uh it's really demonstrated in this graph, and so is the expectation as the UC prices fall toward that MOU that was signed in mid-June, and then maybe falling apart three weeks later. That MOU set out a 60-day timeline for negotiations. Well, here we are, one-third of the way into that 60-day period. And I think there's a lot of skepticism that this 60-day period is going to generate a real peace agreement. But here we are only 20 days into it, and the president said it had already fallen apart. Now they've sort of backed off that, and who knows what's going to happen. But what we do know is that, and this is not shown in the chart because this only happened yesterday, really, uh, or day before yesterday. And that is, you see oil prices approaching where they started out before the war, but when this hostility broke out, they jumped back up to $80 a barrel. So who knows where they're gonna go uh in the immediate future because of the constant instability of these negotiations and really the inviolity of this MOU. The way I really illustrate this is the MOU is just a couple pages long. It's very brief. And so I say, well, if somebody put a mortgage agreement or an employment agreement in front of you that was only a few pages long, and of course, those are far less complex than a peace agreement. If you saw a document like that, you'd say, oh my goodness, what do these words mean? You know, there's no, there's not enough definition, there's not enough hat to really sort through what the commitments of the parties are. And that's what we have here. And so there's a lot of room for uh skepticism about where this MOU and the so-called framing of an agreement is going to go.

SPEAKER_01 18:22

Yeah, I think we all want peace, but what a lot of people in the United States have seen just this this summer is the fact that gasoline prices have gone down as the oil prices have gone down. I think so many people were concerned back in April, March, and April about how, oh my goodness, gasoline prices will be so expensive this summer. How will we take vacation? But the prices, as we look at this graph, have gone down.

SPEAKER_02 18:46

Yeah, they have gone down, and they haven't gone down. Like I said, you can if you compare the two charts, they haven't gone down uh at the same time or at the same rate. Oil price, gasoline prices still remain uh above where they were. Uh, one of the reasons for this is because of the lack of refining capacity. In other words, because of the bottleneck in refining capacity, the lower oil prices run up to that limitation, and not as much gasoline and diesel fuel and jet fuel hits the market as might you might expect, and therefore prices remain elevated. And I believe that you know there's a lot of optimism and happy talk, really, what I call it, that oh, you know, oil prices are down, and you know, people are gonna be saving on uh gasoline is gonna hit $2.50 a gallon by September. None of that is gonna happen. It's impossible for that to happen. I mean, you may be fortunate to live in an area where gasoline prices are lower, but on an average basis in the country, no, that's not gonna happen. And it's because of all the uncertainty about the opening of the uh the uh Strait of Hormuz. It's because there's bottlenecks in loading oil onto the tankers there in the Persian Gulf. There's the distance that has to be uh of that shipment of weeks and sometimes longer than that, and then there's this refining capacity in the uh bottleneck in the US, especially in the US, but it's really all over the world. Another factor here that is really important not to overlook is the huge impact the Ukrainians' attacks on uh on Russian oil and refining uh capacity is having on the world markets. Russia used to be, until very recently, used to be one of the big exporters of oil and gas, the uh refinery products, and that has changed in recent months, and now that Russian oil has been taken off the world markets, and they are actually importing oil because and gasoline and the like, because there's huge lines. Uh, you can see this in the newspaper, huge lines of cars waiting to uh get gasoline, hours long, and even fights breaking out uh in Russia. And uh so you know that's having an impact all around the world, that loss of refining capacity and that switch over of Russia going from an exporting country to an importing country.

SPEAKER_01 21:51

Okay, don't put a muzzle on the happy talk around here because people are excited about the lowering costs of oil and gasoline. And I guess long term excitement. That gold will come back, correct?

SPEAKER_02 22:03

Well, that's exactly right. And um, and I think one of the things we really need to focus on is why has gold uh entered this soft period? And the relationship of oil prices to interest rates is a crucial part of that. And both of them are priced in dollars. But that's really at the moment, right now, that's where people really ought to be uh keeping an eye on the prospects for lower interest rates, and that's good news for gold owners because this Fed uh is fighting inflation, and fighting inflation is going to lead to lower interest rates. And the good news is the president of the United States, who was impatient to lower interest rates, uh has now indicated that, you know, now that he has his own Fed chair in there, he's gonna be more patient. How long he's gonna be patient is anybody's guess. And I suspect he's gonna get some, he's gonna get frustrated with the pace. But uh I'm convinced the Fed is committed to beating interest rates. And when markets believe the Fed is committed, sometimes they don't even have to raise rates uh because there's greater confidence that inflation is going to be beaten. And I think I am concerned about the possibility of a recession, and I am very nervous about what uh the direction of artificial intelligence and the massive investment in artificial intelligence. I think a recession related to AI is inevitable. I don't know when it's gonna come. I wish I did, but I don't know when it's gonna come. But there's a correction in the AI industry. I'm an optimist in terms of AI capabilities, but I think on the way to getting to those capabilities, we're gonna hit a rough patch. And so that's really my concern. And the moment the economy turns south like that, the Fed is gonna get much more serious about the need to lower interest rates. And all of a sudden, there'll be a lot more reasons to be holding gold as a way of protecting your wealth as a form of self-insurance to uh by holding an asset that really uh retains its value, especially in periods of recession.

SPEAKER_01 24:45

That's the happy talk we like to talk about. Philip Dill, thanks so much for joining me today. Thank you, Mike. It's been my pleasure. So many things to keep our eyes on right now. Oil prices and gold prices all depend, basically right now, on the war in Iran. We have to keep our eyes on that. That's all the time we have for today's episode. On behalf of all of us here in the U.S. Money Reserve Studios, thank you so much for tuning in. If you have any questions or you want to learn more about today's episode, you can call the number in our episode description and speak with one of our friendly account executives. They're going to be more than happy to answer any questions you may have about precious metals and the strategic role they can play in achieving a secure and comfortable financial future. I'm Mike Barnes. We will see you next time on America's Gold Authority Podcast.

SPEAKER_00 25:34

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