Global Liquidity at Record Highs Drives Gold to $4,100 as Manufacturing Bottom Signals Next Phase

• Gold reaches $4,200 and silver breaks $50 despite Middle East peace progress, indicating monetary factors now outweigh geopolitical risks in precious metals pricing
• Global liquidity at all-time highs, surpassing pandemic levels, shows highest correlation with gold performance as central banks diversify away from US dollar holdings
• US manufacturing contracted 33 of last 36 months; Fed rate cuts and Chinese easing may signal early stages of industrial metals recovery cycle
• Copper supply constraints from major mines (Cobre Panama, Kamoa-Kakula, Grasberg, QB2) position the metal favorably if manufacturing demand increases with easing cycle
• US government commits $1 billion to critical minerals stockpiling, creating price floors that protect domestic producers from Chinese market flooding tactics

Derek Macpherson, Executive Chairman of Olive Resource Capital, and CEO Sam Pelaez discussed the current precious metals market and emerging opportunities in industrial commodities during their October 14, 2025 Compass podcast. Despite recent Middle East peace progress, gold continues trading at $4,100 with silver exceeding $50 per ounce, suggesting monetary factors have become the primary price drivers. The discussion explored the progression of the current bull market across commodity sectors and identified specific opportunities in copper, rare earths, and critical minerals.

Gold Market Dynamics: Monetary Factors Dominate

The hosts observed that Middle East peace developments have not triggered the expected pullback in precious metals prices. Macpherson noted this challenges the traditional view of gold as purely a geopolitical risk hedge. Pelaez explained that political events have shown diminishing long-term impact on gold prices over the past decade, with any event-driven spikes quickly fading.

Global liquidity emerged as the primary driver behind gold's sustained rally. Pelaez stated that global liquidity has reached all-time highs, surpassing pandemic levels, and exhibits "perpendicular parabolic motion to the upside." He identified this as having the highest correlation with gold performance among measurable factors. No major economy currently appears positioned to curtail liquidity expansion.

The demand side reflects structural changes in central bank behavior. Macpherson emphasised that the world's largest balance sheet holders, central banks, sovereign wealth funds, and major pension plans are actively reducing US dollar exposure. This trend intensifies among countries conducting significant trade outside the United States or facing potential exclusion from the Swift payment system, following Russia's experience.

Evolving Market Structure in Gold Equities

The conversation addressed how massive capital inflows are changing gold equity market dynamics. Pelaez explained that retail and generalist investors typically flow through ETFs and passive vehicles, allocating based on market capitalization or liquidity rather than fundamental analysis. This creates a beta-driven environment at the liquid end of the market where stocks move commensurate with gold prices rather than generating alpha through company-specific factors.

Macpherson noted that high-quality developers have begun moving as a catch-up trade to producers, with exploration companies responding to individual drill results. However, tier-two developers viable but not essential acquisition targets have not yet experienced significant appreciation. The hosts contrasted this with silver, where scarcity among investable names has driven indiscriminate gains across companies with silver exposure.

Pelaez referenced K92 Mining as an example of a company with unique characteristics that should drive outperformance but has merely tracked sector performance, illustrating the beta-driven nature of current large-cap trading.

Manufacturing Contraction Sets Stage for Industrial Recovery

Pelaez introduced research showing the US ISM manufacturing index contracted for 33 of the last 36 months, with similar patterns globally. This three-year manufacturing recession was offset by strength in services, tourism, and AI-related sectors, preventing broader economic contraction.

The September Federal Reserve rate cut initiated an easing cycle expected to continue with additional cuts in 2025. Combined with Chinese rates at historic lows, this monetary easing directly targets manufacturing activity more than other risk assets. Pelaez questioned whether these conditions mark "the early innings of an industrial recovery for the metals."

Macpherson examined copper supply constraints supporting this thesis. Four of the world's top ten copper assets face production challenges: First Quantum's  Cobre Panama shutdown, issues at Ivanhoe's Kamoa-Kakula, Freeport's Grasberg problems, and Teck's QB2 expansion delays with reduced guidance. He noted that major copper deposits are rare and cannot be quickly replaced, creating tight supply conditions that would respond dramatically to demand recovery.

Commodity Valuation in Gold Terms

Pelaez presented an analysis showing most commodities denominated in gold are at all-time lows. He argued that commodity prices should rise nominally with inflation due to extraction costs linked to labor and energy. He compared current conditions to platinum's position one year earlier at its lowest level ever in gold terms before its significant rebound.

The discussion identified capacity reductions across industrial commodities as positive indicators. Examples included Sibanye's maintenance of Stillwater platinum operations, coal asset capacity reductions, and underperforming iron ore mines. Pelaez noted the global chemical sector's condition as particularly severe, comparing it to gold's sentiment in 2013-2014 when conditions "felt completely hopeless."

Government Support Reshapes Critical Minerals Investment

Macpherson highlighted rare earth elements as benefiting from government support despite challenging fundamentals. He acknowledged China's structural advantages in infrastructure, processing capabilities, and cost structure, but noted China's strategic manipulation of supplies to eliminate Western competition during previous cycles.

Recent US government commitments include a $1 billion Department of Defense critical minerals purchase for stockpiling. Government investments in Trilogy Metals and MP Materials demonstrate willingness to create price floors protecting domestic producers from Chinese market flooding. Macpherson cited Fireweed Metals' world-class tungsten deposit as an example where economics are viable but development depends on price stability assurances.

The government support creates investment opportunities beyond traditional mining exposure. Pelaez discussed CoTec's position with exclusive US licensing for magnet recycling technology. This approach avoids mining's complexities, including radioactive byproducts like thorium and uranium associated with rare earth extraction. Macpherson explained that processing and recycling represent more attractive investment areas than traditional rare earth deposits, unless those deposits offer exceptional grades and the right metal mix.

Investment Strategy & Market Progression

The hosts articulated their view of bull market progression following historical patterns: gold leads, followed by silver, platinum group metals, then base metals and industrial commodities. Pelaez emphasised patience in this progression, noting copper's September outperformance reflects both demand potential and supply disruptions as catalysts.

Macpherson advised following government capital flows given their superior balance sheets and longer investment horizons compared to purely market-driven cycles. He compared current critical minerals opportunities to the battery metals trade two years prior, where government backing extended market runs beyond fundamental justifications.

Pelaez concluded by identifying numerous opportunities despite the advanced precious metals rally, stating he hasn't seen comparable conditions in his professional lifetime outside China's industrialization period. The firm continues positioning for subsequent phases as the bull market progresses through commodity sectors.

Key Takeaways

 Olive Resource Capital's analysis presents a multi-phase commodity bull market driven by unprecedented global liquidity and structural shifts in central bank reserves. While precious metals reflect these monetary dynamics, the three-year manufacturing contraction, combined with coordinated global monetary easing, creates setup conditions for industrial metals recovery. Copper appears positioned to benefit next given supply constraints and potential demand recovery. Strategic government intervention in critical minerals particularly through stockpiling programs and price support transforms the investment landscape by removing historical risks of Chinese market manipulation. The firm emphasises moving beyond traditional mining exposure toward processing, recycling, and technology-enabled positions, while maintaining focus on alpha generation opportunities in less liquid market segments where fundamental analysis still drives outperformance.

TL;DR

Global liquidity at record highs drives gold to $4,100 despite geopolitical improvements, with monetary factors and central bank dedollarization creating sustained support. Three-year manufacturing contraction coupled with Fed and Chinese rate cuts suggests industrial metals recovery, particularly copper facing major supply constraints. Government commitment of $1 billion to critical minerals stockpiling creates protected investment opportunities in processing and recycling technologies beyond traditional mining exposure.

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