After we picked the trade and got the Grey Swan Pro out the door yesterday morning, Treasury Secretary Scott Bessent took the national airwaves and cable news to announce “Operation Economic Outcast,” a sanctions campaign aimed at economically isolating Iran.
The program targets the remaining channels Iran uses to raise money and move value: oil, shipping, crypto, gold and aviation. The Treasury also sanctioned more than 60 entities, individuals and vessels, revealing it had mapped the networks Iran uses to evade existing sanctions.
This is the “economic epic fury” piece of the war against Iran.
Bessent is trying to cut Iran off from the financial world while also avoiding a wider market shock. That is not easy. Sanctions on Iran can raise the risk premium in oil, shipping and global trade.
But Treasury also held off, at least initially, on the most aggressive secondary sanctions against China, Iran’s largest oil buyer. Markets treated that as a small relief valve.
Oil fell rather than spiked, which helped ease pressure on inflation expectations and bond yields.
Treasury yields slipped partly because traders expect Bessent may use the nearly $1 trillion Treasury General Account to fund expanded bond buybacks. That’s quite the jump from last week, when the numbers moved from $2 billion to $4 billion.
The 10-year yield moved back toward the 4.6% to 4.7% range, while the 30-year yield eased from last week’s highs.
These are the nitty-gritty details in the bond market. But there are a lot of plates in the air for Bessent and crew right now.
Fund managers started the year thinking gold was overvalued by hefty margins; now, 16% say the metal is undervalued, marking the highest level in three years. (Source: BoA Global)
Gold and silver have already added an estimated $1.3 trillion in market value (overnight after the Treasury’s August 19 buyback announcement). Bitcoin has also held above $77,000 following its recent surge. Bitcoin is trading in tandem with hard-asset demand again.
Amid this backdrop, 16% of fund managers say that gold is undervalued, the highest reading since March 2023.
That’s a rapid shift from even earlier in the year, when nearly 40% of fund managers said the metal was overvalued, a 30% peak-to-trough drop, and shows an institutional shift toward the “debasement trade” – favoring hard assets over weak government paper.
We expect hard-asset demand to accelerate as the government sorts out its rising debt-financing costs.
Gold is the obvious first stop. Its rise past $4,700 is good confirmation that the debasement trade is gaining traction. As is bitcoin’s surge of nearly 30% from $65,000 to $80,000 in the past week.
There are gains to be had across the commodities complex, as they’re all priced in dollars. “None of us own enough hard assets,” Tavi Costa wrote on X yesterday.
In the meantime, Today’s Grey Swan Pro recommendation is a play on an industry-leading company with low cash costs in the precious metals space and should see a massive expansion in its profitaiblity as gold takes off again.
~ Addison
P.S. Thursday on Grey Swan Live!,we’re joined by John Hunt of Casey Research.
