Deficits, Debt, and the Dollar: Why Rate Hikes Won’t Cure Supply-Driven Inflation

• Olive Resource Capital see the September CPI print and an approaching Fed decision as short-term noise layered on an unchanged long-term commodities thesis.
• Derek Macpherson and Samuel Pelaez, executives of Olive Resource Capital, are watching the US Dollar Index's key support level as their clearest signal for where commodity prices head next.
• The firm targets 5-10% position sizes in high-conviction names and aims for its top ten holdings to represent more than half of total portfolio assets.
• CANEX Metals (TSXV:CANX) illustrates the firm's build pattern: a small initial position around district consolidation, scaled up through the open market and financings as the thesis played out.
• Recent exits have freed capital for new positions, with Omai Gold Mines now the firm's largest holding.

Friday's CPI print landed at 3.4%, above the Fed's comfort band but exactly in line with consensus, and markets barely blinked. For Derek Macpherson, Executive Chairman of Olive Resource Capital Inc. (TSXV:OC), and Samuel Pelaez, the firm's President, CEO & CIO, that muted reaction is the calm before what they're calling a "midterm election vortex": a stretch of conflicting headlines, policy noise and price swings that, rather than threatening their long-term commodities thesis, is exactly the kind of environment their investment process is built to exploit.

Speaking on Crux Investor's Compass series, the pair walked through the short-term macro picture, their approach to portfolio sizing, and a live example of how Olive builds positions through a company's evolution, from speculative consolidation play to a producing, catalyst-rich name.

Macro Backdrop: Fed Policy and the Dollar Index

With the Federal Reserve's meeting scheduled for the following week, Macpherson and Pelaez discussed roughly 60% odds of a rate hike heading into the decision. Both agreed the Fed's ability to address the current bout of inflation is limited by its source: diesel prices, driven up by supply disruption tied to the conflict in Iran, are filtering through into transport and food costs in a way that rate policy cannot directly fix.

The pair keep a close eye on the US Dollar Index as their preferred proxy for the broader commodities trade. Macpherson noted it is currently sitting at a technically significant support level, with two plausible paths from here. Pelaez notes,

"If you ask me statistically what's more likely to happen is we may see a short-term rebound of the dollar, which could coincide perfectly with next week and a potential rate hike." 

The alternative, a break below that support level, would in his view open the door to a more significant move lower for the dollar and, in normal circumstances, a corresponding upward move for commodity prices. Either way, the firm is treating the index as the single chart to watch heading into the Fed decision.

Midterm Election Volatility

Beyond the Fed, Pelaez flagged the approaching US midterm elections as a second source of near-term noise. He pointed to a recent proposal from President Trump of a $2,500 to $5,000 per-household payment tied to retaining a Congressional majority, and a same-week reversal on proposed copper tariffs that briefly knocked around 5% off copper prices, as examples of the kind of headline-driven, low-conviction volatility investors should expect through the campaign period.

Neither executive expects an actual rate change before the election. The broader point, in their view, is that the coming months will bring genuine two-way volatility without necessarily changing the fundamentals underneath it.

Positioning: The Long-Term Commodity Thesis

Despite the short-term noise, both executives were explicit that Olive's core thesis is unchanged. It rests on two pillars: persistent government overspending relative to revenue, which depreciates fiat currency and lifts the US-dollar price of commodities over time, and a multi-decade underinvestment in resource extraction and discovery that has left supply structurally behind demand.

On the fiscal side, Macpherson pointed to US Treasury Secretary Scott Bessent's recent comment not to "bet against the house" on rates as an implicit signal that long-end rates are headed lower, even if the timing is unclear. Because the US debt load is weighted toward short-term issuance, a lower long-end rate is, in the pair's reading, effectively required to make the debt serviceable, a dynamic they view as structurally negative for the dollar and supportive of commodity prices over time.

Importantly, they framed this environment as a net positive for a long-term-oriented, closed-end vehicle like Olive. Because the firm faces no redemption pressure, it isn't forced to sell into weakness to meet client withdrawals, a structural advantage over open-ended fund vehicles during exactly this kind of volatile stretch.

Stock Selection Philosophy: Sizing for Conviction

A recurring theme was portfolio construction discipline. Every one to two months, Macpherson and Pelaez sit down to review every position, warrant and holding in the portfolio and ask whether the original investment thesis still holds, whether the price remains attractive, and whether a newer idea deserves the capital instead.

Central to that process is position sizing. Macpherson described a target of building meaningful weight, generally 5% to 10% of the portfolio, in the firm's highest-conviction names, while keeping the overall portfolio concentrated in its best ideas rather than broadly diversified.

"You should have a portfolio dominated by your best ideas, your top 10 names should be more than 50% of your assets."

That sizing discipline scales with risk. Early-stage exploration names, where outcomes are effectively binary, start as smaller positions, often around 1% to 2% of the portfolio, reflecting the asymmetric but uncertain payoff profile. As a name de-risks, whether through a resource update, a permitting milestone or management execution, the position is built up accordingly. Recent examples of that de-risking-into-conviction pattern include Aurion Resources (TSXV:AU), built over three separate purchases across three years before its pending acquisition by Agnico Eagle, and Omai Gold Mines Corp. (TSXV:OMG), Olive's current largest single holding.

Portfolio Case Study

The clearest live illustration of that build-up process is CANEX Metals (TSXV:CANX). Olive's first purchase came at roughly 6-9 cents a share, taken as a smaller, higher-risk position around the initial push to consolidate the adjacent Gold Basin district into CANEX's Gold Range project in Arizona. As the consolidation progressed and attracted high-profile investors including Eric Fier, the firm added to the position in the open market in the 13 to 15 cent range. With the consolidation now largely complete and the story shifting from cleanup to renewed drilling, Olive has continued participating in financings, most recently at 35 cents, even after already realising a five- to six-times return on its initial cost basis.

That progression, smaller initial risk capital, scaling up as the thesis is validated, and continuing to add through financings as the story matures, is, in the executives' view, a template for how the firm approaches most of its positions.

Conclusion

Beneath the week's headline noise sits a thesis Olive's management has held for some time: that structural fiscal imbalance, not any single data print, is the real driver of the commodities cycle. As Macpherson put it:

"Governments in general are spending money at a rate much faster than they take it in. You have fiscal deficits and fiscal debt increasing materially, so you have the value of fiat currencies depreciating."

That framing matters because it reframes the current moment, a hawkish-sounding Fed chair, a hot CPI print, midterm-election noise, as short-term texture layered on top of a currency-debasement trade that both executives expect to persist regardless of who controls Congress after November. Combined with two decades of underinvestment in resource discovery and extraction, the pair see a supply side that is structurally unable to respond quickly even if demand holds steady, a dynamic they argue plays out over years, not news cycles. For investors positioned in resource equities, the practical takeaway is less about timing the next CPI surprise and more about using the volatility that surprise generates to build or add to positions already aligned with the multi-year thesis.

TL;DR

Olive Resource Capital's Derek Macpherson and Samuel Pelaez see the coming midterm-election stretch as a source of volatility, not risk to their long-term commodities thesis. They're watching the US Dollar Index's support level as the key signal, while continuing a disciplined process of building 5-10% positions in high-conviction names, illustrated by their phased CANEX Metals (TSXV:CANX) build from 6 cents to a recent 35-cent financing. No redemption pressure lets them buy into weakness rather than sell it.

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