Gold & Silver Shakeout, Fundamentals Remain Bullish

Key Concepts

Gold and Silver Market Dynamics: Recent price declines in gold and silver, historical context of pullbacks, and the absence of a market mania.
Fundamental Drivers of Gold: Central bank diversification away from the US dollar, fiscal irresponsibility, and weaponization of financial dominance.
US Dollar Devaluation: Historical decline in the dollar's share of central bank reserves and its implications for gold.
Stock Market Overvaluation: Narrow market breadth, high insider selling, and increasing risk despite potential for further gains.
Commodity Outlook: Bullish sentiment on oil, gas, and copper due to peaking production, underinvestment, and strong demand fundamentals.
Investment Strategy: Caution in the stock market, focus on defensive and dividend-paying stocks, holding cash, and diversifying globally.

Gold and Silver Market Analysis

Recent Price Action and Context: The transcript addresses the recent sharp decline in gold and silver prices, which has caused concern among investors. Adrien Day of Adrien Day Asset Management emphasizes that this pullback, while dramatic, is not unprecedented and should be viewed in the context of the significant rallies that preceded it. He notes that prices have only returned to levels seen less than two weeks prior and that the decline represents less than 30% of the rally from September. Historically, pullbacks of 50% or even 60% of a rally are not uncommon, citing examples from 2020 (COVID), 2011, 2009, 2006, and even 1974.

Three Key Reasons for Optimism: Day outlines three core reasons why the current situation does not signal a market top:

Fundamentals Remain Intact: The underlying economic and geopolitical factors driving gold demand have not changed.
Reasons for Buying Persist: The motivations for individuals and institutions to purchase gold continue to be valid.
Absence of Mania: There is no widespread public frenzy or speculative bubble in the gold market.

Evidence for No Mania: Day provides evidence to support the claim of no mania:

Coin Dealer Activity: Some coin dealers report that the number of people calling to sell gold and silver has been as high as those calling to buy, even during busy periods.
Mutual Fund Outflows: Most gold mutual funds, particularly equity-focused ones like GDX (the miner ETF), have experienced outflows over the past few months, indicating a lack of broad public participation.
Comparison to Past Tops: In contrast to the 1980 gold market, where people were seen lining up at coin dealers, there is no comparable level of public enthusiasm currently.

Valuation Metrics for Gold and Silver: The transcript discusses the difficulty in valuing gold and silver due to their lack of dividends or earnings. However, several metrics are presented to gauge their valuation:

Inflation-Adjusted Prices: Comparing current prices to historical highs adjusted for inflation.
Money Supply: Gold's relationship to US and global money supply.
Debt Levels: Gold's ratio to US debt.
Gold to Dow Ratio: This is highlighted as a particularly telling metric. While off its lows, gold is still significantly undervalued relative to the Dow Jones Industrial Average compared to historical peaks that signaled tops. The current ratio is closer to a bottom than a top.
Gold-Silver Ratio: Currently at 80-85:1, this ratio is far from its historical lows (e.g., 16:1 in 1980, 33:1 in 2011), indicating that silver is significantly undervalued. Silver has only recently hit its nominal high, not its inflation-adjusted high.

US Dollar and Central Bank Diversification

Historical Context of Dollar Dominance: The transcript details the long-term trend of central banks diversifying away from the US dollar. In 1999, central banks held 78% of their foreign reserves in dollars. This figure has steadily declined to approximately 65% five years ago, 58% last year (IMF data), and 48% as of August (ECB data).

Drivers of Diversification: Key reasons for this shift include:

Diversification from Single Asset Concentration: Reducing reliance on one currency.
Fiscal Irresponsibility of the US: Concerns about the US government's fiscal policies.
Weaponization of Dominance: The US using its financial power (dollar and SWIFT system) as a tool of foreign policy.

Future Outlook for the Dollar: Day argues that even 48% in dollar reserves is still too high for central banks concerned about these risks. He anticipates continued reduction in dollar holdings, with some going to other currencies like the Euro (currently around 20-22% of reserves) and Yen, but a significant portion is expected to flow into gold.

Stock Market Outlook and Risks

Overvaluation and Narrow Breadth: Day expresses significant caution regarding the US stock market, citing several indicators of overvaluation and increasing risk:

Fundamental Overvaluation: The market is considered overvalued on any fundamental basis.
Narrow Market Breadth: The market's advance has been led by a very small number of stocks, a trend that has become even more pronounced than at the end of the previous year.
Technical Indicators: Various technical indicators, such as the Hindenburg omens, are flashing red.
Insider Selling: The ratio of insider sales to purchases is at a multi-decade high, suggesting a lack of confidence from those with the most insight into company performance.

Analogy of Risk: Day uses the analogy of a drunk driver speeding home safely. The safe arrival does not negate the immense risk taken. Similarly, the stock market's continued rise does not diminish the underlying risks.

Investment Strategy in Equities: Given the risks, Day advises a cautious approach:

Defensive Stocks: Investing in companies that tend to decline less than the broader market during downturns.
Dividend-Paying Stocks: Companies that provide income even if their stock price falls.
Holding Cash: A significant portion of portfolios is being held in cash.
Global Diversification: Investing in international markets, noting opportunities in countries like Hong Kong and the UK, where British stocks are considered very cheap.

401(k) Contributions and Market Dynamics: The transcript highlights how regular contributions to 401(k) plans, which predominantly flow into US stocks, can sustain the market even as risks increase, as long as employment remains relatively strong. However, he warns that market tops are often not signaled and can occur suddenly.

Commodity Outlook: Oil, Gas, and Copper

Oil and Gas: Day is turning bullish on oil and gas, challenging popular assumptions of lower prices ahead. His reasoning includes:

Peaking Shale Production: US shale production, which has driven global oil growth for the past decade, has peaked or is about to peak. Future growth from shales is unlikely.
Lack of Replacements: There is uncertainty about new fields that will replace shale production.
Impact of Green Narrative: The strong "green" narrative over the past decade led to underinvestment in the oil and gas sector, with companies facing negative sentiment and a significantly reduced weighting in major indices like the S&P 500 (currently less than 2% compared to 18-22% 15-20 years ago).
Unprecedented Extremes: Oil and gas are at an unprecedented extreme of cheapness relative to gold.
Recommendation: Investors should ensure companies have strong balance sheets to withstand potential price volatility.

Copper: Copper is also seen as very cheap relative to gold, with a strong fundamental story:

Scarcity of New Mines: There is a lack of new large copper mines being discovered and brought online. Many current top producers started in the 19th century.
Supply Disruptions: Recent temporary shutdowns at major copper mines (Cobre Panama, Grasberg, and others) are exacerbating supply issues.
Demand Drivers: Even with conservative assumptions for demand from electric vehicles, data centers, and electrification, current and projected production is insufficient to meet future needs.
Price Resolution: The supply-demand imbalance is expected to be resolved by higher prices within five to ten years.
Key Risk: The primary risk to copper is the global economy, particularly the Chinese economy, which is the largest consumer. Mixed signals from China, including potential deflationary trends, need to be monitored.

Investment Firm and Final Advice

Adrian Day Asset Management: Day manages separately managed global accounts, finding opportunities in diverse markets like Hong Kong and the UK. His firm also invests in gold and resources. He also manages the Europe Pacific Gold Fund for Peter Schiff.

Final Thoughts: Day's concluding advice is to "not freak out" during market declines. He reiterates that the market has experienced worse situations, referencing the 1974 gold drop. The key lesson is to avoid overinvesting in any single sector, which allows investors to tolerate volatility. He suggests that in equities, investors should begin to "pick away" and look for good opportunities.

Miles Franklin Weekly Specials (October 20th - October 27th, 2025)

1oz Gold Philharmonics: $99 over spot.
2oz Silver Canadian Rocky Mountain Coins: $4.50 over spot per ounce.
Kilo Silver Britannias: $2.99 over spot per ounce.

To order, call 1-888-81-LIBERTY (1-888-815-4237). Availability is while supplies last, and they are open after hours and on weekends.

Gold & Silver Shakeout, Fundamentals Remain Bullish | Adrian Day