Over the past few months, we have consistently held the same view: hopes for lower market yields are largely wishful thinking; investments in the oil sector should by no means be ignored; pessimism regarding the U.S. dollar is grossly exaggerated; and stock markets are hovering near their upper limits in the long term.
In last week’s Thoughts, we spotted initial signs that the stock market might stabilize somewhat in the short term—a few tentative, wobbly steps toward stabilization did indeed appear, but today it’s clear: it was definitely too soon. No sooner has the current maestro of the financial markets—the oil market—almost touched the $100 mark again than the sentiment sweeps through the trading floor: inflation could rise again soon, and the Federal Reserve cannot lower interest rates any further. For precious metals, this is poison; for stocks, it’s a soup that’s too salty. Only the U.S. dollar is slowly gaining popularity. Today’s Fed meeting has only confirmed this assumption.
Our oil market indicator clearly shows that a supply shortage prevails. Spot prices are significantly above the 12-month futures contracts—normally, due to storage costs, it would be exactly the opposite. Experts call the usual situation ‘contango’, whereas currently a situation of ‘backwardation’ prevails. The blockade of the Strait of Hormuz is making its presence felt. Bottlenecks are already clearly visible in the market; the last time we saw a comparable intensity was in February 2022 at the outbreak of the war in Ukraine.
As the markets gradually align with our previous assessment, we are discussing new insights and theories: The escalating situation surrounding the war in Iran could put our analysis to the test once again.
Rising oil prices have an inflationary effect on almost all products and many services—oil is in almost everything, and transportation costs are literally skyrocketing. In short: oil prices and inflation go hand in hand.
Added to this is the fact that many consumers—not just in the U.S.—have significantly lower savings or are even living in debt. For many, job security is also declining, not least due to advancing automation and the AI revolution. The result: consumer spending power is dwindling, the economy is hitting the brakes, and a recession looms on the horizon. At the same time, inflation is rising while the labor market is weakening—the specter of stagflation is knocking audibly at the door.
The new Fed Chair, Kevin Warsh, who takes the helm on May 16, 2026, is thus entering challenging territory. He would have to combat inflation with higher interest rates—but in doing so, he simultaneously slows down the economy. On top of that, he has a boss breathing down his neck who wants lower interest rates and hopes to be re-elected in November. The longer the war with Iran drags on, the tighter the balancing act becomes.
It could therefore happen that stabilizing the economy takes priority over fighting inflation—in order to secure the Republican majority in the midterms as well. If the Democrats win one or both houses, the U.S. president would be practically unable to act. And yes, this assumption sounds far-fetched — but we know by now: The current U.S. president is always good for a surprise…
One option for lowering interest rates to boost the economy could once again be Quantitative Easing (QE). Inflation could then be tackled afterward—if it actually materializes. The currently strong US dollar would certainly withstand a new round of QE, and the fact that inflation would incidentally reduce the relative level of US debt a little would be a pleasant side effect.
Admittedly, a bold thesis. But it is not unlikely. The result: stock markets could regain strength, US yields would fall, and the US dollar would stabilize—as long as capital doesn’t flee frantically from Europe into the greenback. The big winners would be the struggling precious metals. And President Trump, because this is a mix voters love.
While we discuss the long-term direction and possible scenarios, the markets remain on their current course. Dwindling hopes for lower interest rates are causing stock and precious metals markets to tumble further. Uncertainty grows with every day that passes without positive developments in the Middle East. Our earlier assessment that the stock market could soon bottom out was thus clearly premature. Short-term developments remain difficult to gauge, especially when the public is not aware of all the facts and developments in the Middle East. Speculation is intensifying.
The ‘Smart Investor Action’ indicator shows, via the light blue area, that selling pressure in the background remains enormous. The fact that no red ‘Exaggeration’ area is generated dampens hopes for a quick recovery—unless positive news from the Middle East begins to emerge. Should this happen, a recovery is likely to last longer given the current extreme pessimism.
Enthusiasm in the Chinese (physical) gold market has also waned in the meantime and thus offers no support for the time being. Currently, there is even a slight distribution.
In the western gold market, however, distribution pressures were stronger. Surprisingly, the trend in distribution strength has recently taken a turn for the better: the first signs that selling pressure is easing are becoming apparent.
Pessimism in Western gold trading has also recently reached levels typically seen only at short-term lows.
A similar picture is emerging in the silver market: even though the price does not seem to be finding a bottom at the moment, selling pressure is weakening, signaling a silver lining on the horizon.
