Gold price drops in a crisis: the mechanical reason

0:00We are in a crisis. You know it. I know it. Winston knows it. Your neighbour's dog knows it. And oil tankers are getting attacked in the Persian Gulf. The crisis seems to be getting worse. And central banks are holding gold like it's going out of style. The national debt just blew past whatever crazy trillion dollar amount it is right now.

0:21And here is the question nobody on financial TV has the guts to answer. Why the f hasn't your gold gone up? Seriously, you bought the gold, you did what the smart money said, you watched the geopolitical chaos, you followed the playbook, and your gold stack, your gold ETF, it's red, right? So if that's you, stay right here because what I'm about to show you in the next few minutes is going to change the way you see gold, silver, and every crisis trade for the rest of your investing life.

0:51My name is Felix Prehn. I'm an ex-investment banker and economist, also the founder of GOAT Academy. That's Winston back there who does all about gold research, right? Golden retriever. You see what I did there? And I sat on the trading floors. I've watched how the sausage gets made and then how Winston ate it.

1:09And I've seen this pattern play out. Gold dropping in the middle of a crisis. And what I'm about to walk you through is not an opinion. It is a mechanical sequence that has repeated after every major oil shock in the last 50 years. 1973, 1979, 1991, 2001, 2022, every single freaking day. And once you see it, you can't unsee it.

1:34So let's start with the thing that's making your blood boil and making you lose sleep. If you have a crisis, what does gold do? What does gold do after and before and during? Well, gold drops during. And that doesn't sound very logical, but I can tell you that's what happens every single time. Every single time. Not after, not before, but during.

1:58And I know that sounds mad. Gold is supposed to be the safe haven, the thing you run to when the world's on fire. It's your financial bomb shelter, right? But here is what the greatest macro trader alive just told us, and his name is Stan. Stan the Druckenmiller. And he understands something most retail investors don't. Gold doesn't respond to fear. Gold responds to what Wall Street calls liquidity.

2:30And in the first few weeks of any major geopolitical shock, liquidity does something very specific, something very predictable, and something very, very, very painful if you don't understand it. So here's the mechanical sequence. Write this down. Take a screenshot. Tattoo it on your forearm. Whatever you need to do to remember this.

2:55We get a geopolitical event. Let's say hypothetically a major war in the Middle East. What happens next? Well, oil goes up, right? What happens when oil spikes? Well, inflation doesn't actually go up immediately, but inflation expectations certainly do. When inflation expectations rise, what does the Federal Reserve do? The Fed can't cut rates.

3:30Now, when the Fed can't cut rates, what happens? And I know this gets a bit complicated, but bear with me. Seriously, this is so important. Bond yields, so basically debt interest, we're going to call it yield, stay with that word, go up, right? When bond yields are high, gold becomes less attractive.

3:55Why the heck is that the case? It sounds so unfair. Well, if you have debt, government US debt guaranteed by the almighty himself, and then you have gold or any other asset, well, then debt sounds more appealing right now because it's paying you a higher interest. So if you can get 5% from the US government with zero risk and then gold is there and it's doing this, money is going to flow into the sure thing.

4:27And there is one more thing to this. And I told you this was going to be a little bit complex, but it's so important. The other thing that happens here is that the US dollar goes up. And we've seen that. Why? Because all the minnow poops around the world who are terrified about said geopolitical event, the hypothetical war in the Middle East, they're going to move their money into the one safe haven that the world still seems to be believing in. And what is that? It is US debt. So money pours into here and therefore the dollar goes up.

5:07Are you still with me so far? Is this landing for you? Put an L in the chat or something so I can see it because I know I'm throwing a lot at you here. So you have in essence higher US bond yield, which is just a fancy word for how much money you can make off bonds. You get a stronger US dollar, which again makes the bonds more attractive because if you buy them in the, say you're a pesky foreigner, right, you deal in a monkey currency like the euro, you now buy your US dollar bond, you get a higher interest rate and then the US dollar goes up so you are twice as happy, which is fairly rare for a European.

5:52So on top of that we know that the Fed is basically stuck. They can't do anything, they can't really cut rates anymore. So you get 3 headwinds hitting gold at the exact same time. And that is why your gold is red while the world burns. This is the first time someone's explained this to you. Maybe put gold in the comments down below and Winston will take full credit for that.

6:13Now, here is where this gets exciting because this suppression, this mechanical, predictable, temporary suppression of the gold price, it does not last. Here's what happens next. The bond traders, who are definitely smarter than most of us, I used to sit next to one, not the funnest people in the world, but they're very smart. They're realising that the US has some crazy amount of debt, whatever it is right now, $38 trillion. And they also know that about $9 trillion of that needs to get refinanced, which is just an extra trillion dollars in interest payments.

6:48So we don't need to go down the whole rabbit hole of that. But the government now pays more in interest than it spends on its entire military. And that's pretty mad, right? The entire Pentagon banner budget, every aircraft carrier, every fighter jet, every soldier, more spent on debt. So the bond market looks at this and they go the only way this is sustainable is if we get lower interest rates. And they therefore know that the Fed has to cut rates because the US can't afford not to.

7:22And that's going to be the reversal trigger. When the bond market internalises that rates must come down, the thing I just showed you will start to unwind. The dollar will weaken again and every single one of those 3 headwinds I just described will just go nowhere. And in my humble opinion, gold will once again go up.

7:43By the way, the same is true for silver. And I put out a silver video a few days ago. People went absolutely loony about it because I said to them that COMEX won't fail and it won't, but it's not popular, but it's the truth. So my goal here is always to tell you guys the way I see it, to tell you what I've learned from my Wall Street mentors, not some fairy tale that everything is going to moon. But I appreciate that isn't necessarily popular.

8:09So we can handle it, can't we, Winston? Yes, we blocked about 400 people off that video for being just numb nuts, which is pretty unusual because usually our viewership here is lovely. But I knew it was going to ruffle some feathers. Anyway, I did it anyway. Let me know if you watched that one. Otherwise maybe go back one video. It's honestly going to change the way you look at metals markets and it's going to separate the myths from the facts.

8:36I'm going to do one better for you as well. We're going to run a live session this weekend. No fluff, not a pitchathon, just the rules I learned on trading floors. So if you want to learn what those rules are, how we pick and when we pick, whether it's gold, whether it's silver, whether it's Apple stock or anything else, you want to learn those Wall Street rules for picking stocks or metals, join me at phoenix.org/training. The link is in the description down below and it'll be fun. Winston will be there.

9:11So look, what I've just told you, I don't expect you to take my word for it. I appear just to be some guy on the internet with a strange head of hair. So let me show you some data. Let me show you every major oil shock in the last 50 years and I'll show you what gold did because this will make you believe it and this will make you internalise it and this will therefore allow you to make a better decision going forward.

9:36So if you go back to October 1973, I was minus 7 years old at the time. OPEC cuts oil production and then slaps an embargo on the US, right? And oil goes from $3 to $12, right? It goes up 4x. Now what does gold do? Gold initially went down and then it rallied 150% in 2 years.

10:06And if you look at the entire time period, 1971 to 1980, which is the whole oil inflation disaster, gold went up 2,300%. Not a typo, 2,300%. And let me know in the comments if you think we're going to do a repeat. Put repeat in the comments down below.

10:28But let's go back and look at a completely different part of the world, a completely different crisis that has nothing to do with the present one. 1979, the Iranian revolution. The Shah falls on his hip and says I can no longer govern and we shan't mention.

10:45Certain countries we shall not mention armed the Ayatollah, and might at present be fighting the very Ayatollah or his descendants. Anyway, we don't need to go into that either. That is not popular either, but it's true, isn't it? We just keep going around and round and round in cycles, which is very profitable for some people.

11:06Anyway, what happens? Well, oil production drops. Oil production drops massively because actually the Persians at the time made a lot of oil. So what happens next? The price of oil goes to the moon. And what happens to gold? Well, doesn't do a lot initially and then over the next 12 months it goes up 89%.

11:33And then over the following year it does another 10 and something per cent. So it goes up bigly after this oil crisis. Now what if there was another oil crisis in some other part of the world, say 1991, the Gulf War. Yes, we're back in the same part of the world again, aren't we? Another country that we once armed to fight the Iranians.

12:03Anyway, so Iraq invades Kuwait. Oil spikes a lot. Gold actually popped up fairly quickly, about 10% in a couple of weeks. Energy stocks went up a lot. Defence stocks obviously outperformed till the end of time, but gold certainly popped here.

12:222001, the post-9/11 world, markets crash, everybody panics, and then the recovery pattern kicks in. Gold began a decade-long bull run from literally $250, that's how cheap it was, to $1,900. That is an epic bull run.

12:48And then, oh no, actually there is another part of the world apparently in 2022, Ukraine, Russia, what happens? Gold goes up. Gold breaks through $2,000 and a bit. And look, every single one of these major gold rallies had fewer structural events supporting the price of precious metals than we're seeing right now.

13:13In 73, the US's national debt was like $500 billion. Today, it's what, $38 trillion or something. In 73, central banks were selling gold, and they're not now. I can tell you, we track it. First of all, we track when institutions are selling. By the way, this is something in our Metal Minute community, which you can join down below. It's like 6 packs a week or something. I believe they're making data available very affordably.

13:37You can also keep an eye on what's going on in the world, by the way, which is pretty useful especially if you're into mining and everything else because you can see all the energy infrastructure in the world. You can see all the mines in the world and you can really see what's going on there.

13:53But if you go back to the metals side here, yes, institutions are selling. That's useful to know. But when they're selling at this extreme level, right, this pretty extreme, they're really, really, really selling. And you look at what happened in the next 90 days, and it's not financial advice, I'm not a registered financial adviser or registered as anything really, but historically, doesn't mean it's going to have to happen again, it went up 20% over the next 90 days when the institutions were this heavily positioned against gold as they are right now.

14:24Silver, similar story. Not quite as extreme right now, but I'm still, I must admit, bullish silver. Just because I explained to you that COMEX isn't going to fail in the previous video doesn't mean I don't think silver is going to go on another tear again. Doesn't mean you should run out and buy it just because I like it. I mean Winston is a permanent gold bug, can't really fix that.

14:46But what I was trying to make the point before I completely distracted myself is that central banks are buying. 1,000 tons plus last year which is just massive, massive, massive, massive buying. So central banks are diversifying away from the US dollar because they know what the Americans are capable of. They can seize your money. So they don't trust the dollar.

15:10And if you go back to say 1973, there was no silver supply deficit either. They didn't have one. In 73 didn't have one, but in 2026, we have one for 3 years running. So the fundamental story hasn't really changed. China is restricting more and more exports. So every condition is more extreme.

15:36So now you understand why gold drops first. You've seen that it recovers every time. Doesn't mean it has to this time, but we're just looking at history here. So the million-dollar question is literally when. Tell me when. I've got patience for this, for crying out loud. I've been in gold for 3 days, I haven't made any money.

15:55Patience is a virtue, they say. When does the recovery in the gold and silver prices happen? We saw a little bit of a bounce in the last few days but not significant. And when do we get in, when do we get out? So this is what I learned from my Wall Street mentors, guys who literally worked in banking, the metal exchanges for decades, and it is the 4-phase recovery pattern.

16:13There are 4 phases to this, and those mentors by the way are the same guys who teach my students inside the GOAT Academy. And we've taught over 20,000 people the last 6 years which is insanely gratifying. But let me give you the framework.

16:33So what have we got? We've got phase one, and that is usually week 1 to 4. Pardon my handwriting by the way, I know it sucks. And what happens? Everybody panic sells. Oil and gold, everybody panic sells. Markets drop, financial media is running some 24/7 coverage to this dramatic music and red graphics to really freak you out.

17:03And this is where most retail investors do one of two things. Either they panic sell, or they panic buy gold at the absolute top of the war spike. Both are typically wrong. So what's actually happening? Smart money, well, they think they're the smart money, just ask them. Institutions, the pension funds, the sovereign wealth funds, and so on. They're watching. They're patient. They've seen the movie before. They're not doing anything.

17:25And then we get into phase 2, which is usually month 2 to 3. The panic in the market starts to settle a little bit. There's an indicator called the VIX which is fear, that comes down a little bit. And the safe havens pull back. Gold drops. Silver will drop more, maybe 15, maybe 20%.

17:50And that's kind of where the massacre happens because this is where the average retail investor looks at their portfolio, sees red and reads something about gold being over and sells. And in my humble opinion, this is the worst possible time to sell. But it is the most common time that people do sell because we as humans are hardwired to do the wrong thing at exactly the wrong time.

18:13And then we get to phase number 3 and that's usually month 4 to 18. This is where the money is made. The broad market starts recovering. Rotation into growth starts beginning. Gold finds a bid again. Not the panic bid, but the structural bid backed by central banks buying, the supply deficits in silver and all the debt stuff that we talked about. Miners start leveraging up, energy stocks rally.

18:43And here's the really cruel part. Most retail investors are too scared to get back in. They sold in phase 2. They took a loss. And now they're sitting on the sidelines watching and they're going, I'll wait for the pullback. I know it's going up, but it's temporary. I don't trust it. I'm going to wait for the pullback. The pullback may never come.

19:04And that leads us into phase 4. Not quite sure what's going on with a strange Spanish accent today. I'm sure it's incredibly insensitive and offensive to somebody. Let me know if you're offended by this video, it would make my day.

19:16What happens in phase 4? This is typically month 12 onwards. Can be even 2 or 3 years is this time period. What do we get? We get new all-time highs, higher than the pre-crisis level. And this has happened literally after every major oil shock in modern history. 79, 1991, 9/11, 2022, new highs.

19:47Now, do you want to be positioned before the herd figures this out? Put her down below in the comments. And for crying out loud, join us on Saturday because that's where we're going to really go deep on when we position and how we read exactly these phases.

20:01But I'm going to talk to you about more than just gold and silver here. Let's look at the 5 sectors that have outperformed during every single geopolitical crisis over the last 50 years. I give you some specific tickers. You can look them up at the end of this video.

20:17So what are our sectors? Sector number 1, we have gold and gold miners. Now you're speaking my language. Ticker symbols like GLD. GDX is the miner ETF. You can of course also buy the physical. Stacking and all that. There is an advantage in that, you own it. No shenanigans of Wall Street's are involved, but there is a premium you pay. You've got some storage issues. You got some insurance issues. You got to sort that out.

20:45I have a friend who says, I have 12 very large dogs and a shotgun, I think I'm fine. That works in some parts of the world. It is unfortunately illegal in others. And I don't think Winston would really put off a burglar, would you? You would just go over and say, can you stroke my ears?

21:01But why are we looking at miners with an E, not with an O? Because say gold goes up 10%, the miners tend to go up 20 to 30%. We made a lot of money last year on the miners. We're very happy with that.

21:14Leverage bet on the gold price without the complexity of actually setting up leverage, which I'm usually not a big fan of. Now, the second sector we're looking at is silver. Right now, you could just buy an ETF, SLV, if you must. We've talked extensively about the shenanigans of the silver market. I'm not going to get into that here, but I want to spend a little bit of time on it because again, most people misunderstand silver. Silver isn't just a precious metal.

21:41So gold is precious, right? It's the precious metal. It's a monetary metal. Silver is also a precious metal, but it is also an industrial metal. What does that mean? Goes into solar panels, electric vehicles, AI data centres, defence electronics. And the opportunity is that depending on which side of the trade you're on, silver has been in this deficit for years.

22:10So the world is literally consuming more silver for years than it's producing. And you don't need an economics degree to know what happens when demand exceeds supply for years, right? Inventory drops. You can look at the COMEX industry inventory life here. We're about 76 million ounces. There we were at about 120 million, right? So we're looking to half that. So there isn't a lot left there. And the largest refiner of silver has restricted exports.

22:46We have the silver stress index at extreme at 95 here. And why am I telling you this? Because if we go back and we look at how gold performed and how silver performed, silver outperformed gold by a factor of 3x. Again, I'm not saying it's therefore going to happen this time guaranteed, but this is the history, right? So if silver does a fraction of what it did in '79 and we adjusted for the current structural deficit and the massive industrial demand we didn't have then, we don't have solar panels putting a blot on the landscape, it potentially could be more or less, right?

23:23And then we have sector number 3 which is energy. Now a simple way to invest in the energy sector is you buy an ETF called XLE. By the way I never ever ever am sponsored by anybody. We refuse absolutely all that kind of stuff. So if I give you a ticker, it is just a ticker I happen to research. It is never because somebody encouraged us to do so. We don't do that kind of thing, do we, Winston? No. No sponsorship ever on this channel.

23:46And I think that's very important. Why this? Because 20% of the world's oil goes through the Strait of Hormuz. That is disrupted. So oil prices are going up and XLE gives you broad exposure to the whole sector. It's not rocket science.

24:034 is defence and then they tag in aerospace on it to make it sound a little bit better. They're basically war stocks. The biggest ETF on this one is called ITA like Italy. And defence spending isn't going to go down, right? It's going to go up. Like after 9/11, defence stocks outperformed the S&P by 47%. And ITA is an aerospace and defence, gives you the whole basket. It's already up. Again, I'm not saying you should run and buy it. I'm just saying those sectors tend to typically continue to outperform.

24:35And then we've got sector number 5, which is the really sexy stuff, utilities. And the ticker symbol here is XLU if you want the broadest one. Why utilities? Well, they pay dividends. They are domestic. They're defensive. So, every major market crash was preceded by an oil price spike. Literally go back 1999, 2007, 2021. And by the way, one of my mentors told me this 2 days ago. I shouldn't take the credit for it. He's the head of our academy as well and he's right.

25:08And if you're worried about a market crash, then look at this. Say 2022, the S&P went down. We went down 15% on the S&P after Russia invades Ukraine. What about utilities? Utilities were flat, which is a lot better than minus 15%. Everything is bleeding, but the boring stocks did their job, right?

25:34So, a smart portfolio for a geopolitical shock isn't 100% gold. It is diversified across sectors weighed by your risk tolerance and how your life is set up. But if you zoom out a bit and you can think past this crisis, and this crisis will eventually end somewhere between months and decades, you never know with wars. How long did Afghanistan go on for? Almost 20 years, right? Must have been very profitable for, sorry, must have been very good for humanity. I'm a cynic, aren't I? Yes. It lowers expectations though. It's quite helpful.

26:05The debt story is really the big story because ultimately the Fed will do 2 things. It's already doing that by the way. But the Fed will lower rates and it will increase the amount of money that's out there. They're printing money. They're injecting, I think can't remember what the number was but it's billions just today as I'm recording, again something we track inside the community. And what is that going to do? Well more money and lower rates is going to do what? It's going to cause higher inflation and simply the fact that there is more money out there means something else goes up which is assets, right? So stocks, real estate, but in my humble opinion the hard assets, the gold, real estate and also what I would call quality stocks are likely to outperform.

27:00And let me leave you with this. There are 2 types of investors watching this and this is probably the most important thing I say in this entire video. There is the investor, and maybe let me know which type you are. There's the type 1 investor and they see gold pulling back from its highs and think the trade is over. Gold was a hype. I should have sold at the top. And they go back to scrolling through their phone, maybe watch another guru who tells them to buy crypto AI stock or whatever the algorithm is pushing that week. And then 6 months from now when gold is at new all-time highs they'll say I knew I should have, felt right. That's type 1.

27:38And then you get type 2. They see the same pullback and they think, ah, phase 2 absorption, mechanical suppression, the structural setup was even more bullish than it was at the top. And they accumulate quietly, right? Just like the institutions, just like the central banks. And it isn't about who's intelligent. It isn't about money. It isn't about connections. It's about understanding the mechanics.

27:59So, let me know which type you are. And when you do that, realise that you are making a decision based on all the information you have. If you're just following me blindly and you're hoping that in the right moment in time I'll put up a video and I'll tell you to buy or sell, which by the way I never do if you watch my videos carefully, we don't give financial advice here. My goal is to give you pattern recognition, structure, give you the tools and the education so you can make better decisions.

28:28Then that's something you want. Join us on Saturday because that's where we're really going to implant a lot of education. But what we covered, we've covered that first, gold drops during crisis, not because it's broken, because it's actually how it works. So oil goes up, inflation expectations go up, the Fed can't cut, right? Yields go up, the dollar strengthens and gold dips. And I know it's a lot of information. I totally get that. But if you just are aware of it, it'll also make you already smarter, better educated than 95% of investors.

29:00And then you know that this is temporary. And then second, look at every major oil shock in the last 50 years. They've been followed by a massive gold outperformance. I also mentioned that every major oil shock happened just before a big market whoopsie, right? So that's something to think about as well.

29:18So to me, the structural setup is more extreme than what we saw in any of the major oil crises we've had in the last 50 years. There's more debt. There's more central bank buying. There's more silver scarcity. There's more industrial demand. And we have our patterns. We understand them now. We understand also which other sectors potentially benefit from that. I walked you through that.

29:37And if you want to go deeper, you want to learn the exact rules that Wall Street uses to pick stocks and metals during these windows, join me for the live training on Saturday, 8:00 p.m. Eastern time. It is completely free. It'll probably run about 2 hours and I'll teach you a lot and we're going to have some fun. And I will literally give you the playbook that most retail investors never even hear about, let alone get access to. Links in the description. It's also in the pinned comment.

30:07Winston and I say, Winston, any thoughts on gold? Winston. Hey, come on. Come on. He's just done a really long hike through the mountains, which is why he looks like that. I wish you all the best. I wasn't going to make this video because it's not going to make me very popular. What I'm about to tell you is not something that the silver and even the gold community wants to hear. I believe that you need