Geopolitics and Gold Fever Dominate January Market Action

January started with the US military operation “Absolute Resolve” in Venezuela, where special forces captured Nicolas Maduro and his wife Cilia Flores, and brought them to the US to stand trial for narco-terrorism and drug trafficking, based on a 2020 indictment. The State Department has claimed Nicolas Maduro was the head of ‘Cartel de Los Soles’, which was designated as a terror organization. Then, attention quickly shifted to the Greenland issue, which dominated speeches, panel discussions, and negotiations during the World Economic Forum at Davos. These geopolitical issues had a significant pull in all markets (stocks, bonds, precious metals), along with quarterly corporate earnings releases, and the new Fed Chair nomination. To provide you with a better background on all of these factors, this month’s newsletter has four sections: **Geopolitics, Gold Fever, FED Chair, and Market Catalysts. **

Geopolitics:

To put things into perspective regarding Venezuela, Iran (both Chinese allies), as well as the rest of the world, you need to be aware of the current Chinese “Doctrine of 4 Wars”. The Chinese Central Military Commission under President Xi analyzed how China could be successful in a war against the US, presumably a war stemming from a Chinese invasion in Taiwan. Since the US military is designed and built to fight 2 wars concurrently, the very conservative Chinese military leaders concluded that China’s odds of prevailing in a military confrontation with the US increase significantly if the US is already involved in 3 wars, when China starts the 4th one, thus the “Doctrine of 4 Wars”. Waiting for the US to be involved in 3 wars could take time, but with some help from its allies, China could make it happen sooner.

Notice that during 2025, while the US military was still busy providing Ukraine with weapons and intelligence support for its war against Russia, the US Navy had to occupy one of its fleets to keep the Bab Al Mandab Straight at the Gulf of Aden safe from Yemeni attacks on commercial vessels. The Iran-backed Yemeni Houthis did not stop the attacks until July 2025, a month after another US fleet bombed the Iranian nuclear facilities (June 23) along with other Iranian military installations to stop the Iranian threats to Israel.

It was at about the same time (May and June) when Venezuelan President Maduro kept threatening neighboring Guyana with invasion due to disputed territories rich in gold and oil. The US would have to intervene militarily to prevent the seize by Venezuela of oil fields in Guyana, since they are developed and operated by US oil companies. That would be the 3rd war the US would be involved concurrently, all involving Chinese allied and supported countries (Russia, Iran, Venezuela). Coincidence? We think not, and apparently the US administration didn’t think so either. Maduro’s timely war threats, when the US was already involved in two other military operations, exposed his role as a Chinese tool, and that sealed his fate.

The campaign in Iran ended immediately after the bombings of critical targets and that fleet returned to Southeast Asia (closer to Taiwan). A deal mediated by Oman stopped the Yemeni attacks on commercial vessels, and that US fleet returned home. By September, a US fleet positioned itself outside of Venezuelan waters waiting for the right opportunity to capture Maduro. Ironically, it was his Chinese supporters who provided this opportunity to the US forces. A Chinese delegation traveled to Caracas to sign 60 agreements with Maduro to show their commitment to him. That forced Maduro to come to the Presidential Palace for the signing of the agreements where he was ultimately captured. Within two weeks of his capture another US fleet was moving back to Iranian waters to finish the job that was interrupted by Maduro’s shenanigans over the summer.

One after the other, the spots of Chinese influence are being neutralized by the US. We wouldn’t be surprised therefore, to see rapid developments in Cuba, where the Chinese operate observation stations to monitor the US military activities. Panama, where the ports at the entry and exit of the Panama Canal are operated by a Chinese company which could potentially paralyze the traffic through the Canal if ordered so by the Chinese government. Even Nicaragua could see some developments, where the Ortega regime has offered China the opportunity to create another Canal in case China loses control of the Panama Canal. Greenland can also be viewed through the same lens as the Latin American countries mentioned above. China has made offers to Greenland in the past to build ports, airports, and operate mines in the country, something that would give China tremendous access and control of North Atlantic and the Arctic. That is not acceptable to a US administration willing to enforce the Monroe doctrine of US control over the western hemisphere. We believe this is the reason Greenland suddenly became such a priority for the US government.

Meanwhile in China, the intense efforts of President Xi to make the “Doctrine of 4 Wars” reality has caused presumably a rift between the political and military authorities. The 7-member Chinese Central Military Commission, which President XI is presiding over, has been reduced to just 2 members, Xi and one of the generals. The five other generals were arrested in January under vague accusations of giving the US Chinese nuclear secrets. There is also information about leadership changes in all military units larger than a regiment. If that’s the case, this would be a clear attempt from Xi to take control of the Chinese military. This could increase the possibility of a US – China conflict. This fear possibly explains the movement in precious metals prices…

Gold Fever

Prices of gold and silver surged dramatically over the past year— Gold rose approximately 65% and silver prices increased about 140% in 2025. January saw another relentless surge in precious metals prices. Gold, platinum, palladium, and silver all exhibited parabolic upswings, which cannot be attributed to economic reasons. Gold rose about 29% and silver rallied around 96% in January alone, before they both abruptly retreated during the last trading day of the month. Such explosive moves are typically characteristic of what’s called “blow-off tops” and are the result of either uncontrolled fear or unhinged speculation.

Geopolitical fear certainly can play a role in such exaggerated moves, but at such high prices for these metals, the buyers are making some implicit assumptions and they may not even be aware. For instance, at $5,300 per ounce of gold, the entire gold market is worth $37 Trillion, meanwhile, the whole US stock market is worth about $73 Trillion. What must happen in the world for the gold market to be worth half the value of all US companies with their technologies and innovations? The US economy, the US stock market, and the currency must have collapsed. Of course, none of this is happening. The US economy is doing fine; the 2025 third quarter GDP was 4.4% and once we have the fourth quarter data the full year GDP will end up in the 2%-3% range; the latest inflation rate data was at 2.6%—2.7%, and the latest unemployment rate data was at 4.4%. The US stock market is trading close to its all-time highs, and the US dollar, while weakening a bit during the last 12 months, has only weakened a combined 5% during the last 3 years. Needless to say, none of the above implies collapse or emergency.

When investors pay $5,300 or $5,500 per ounce of gold, they are implicitly assuming either the US has lost a major war, or western civilization has collapsed and lawlessness and anarchy are prevailing. Yet, it is still hard to envision how gold or silver would be useful in such post-apocalyptic scenarios. Especially if armed gangs of marauders are roaming the streets scavenging for food, it is highly doubtful that anyone flashing gold or silver coins trying to buy supplies will make it back alive. If the ‘doomsday’ or ‘apocalyptic’ scenarios are what people are preparing for, we would instead suggest a good supply of canned or dry food, bottled water, medicines, fuel, guns and ammunition to last them a few weeks until law and order is restored.

The point we are trying to make here is that buying precious metals serves a purpose or solves a problem, but investors need to know which purpose or which problem they are trying to solve. Holding physical (not paper contracts) precious metals can preserve purchasing power in a collapsing currency environment. Other assets can serve in that capacity too, like real estate, farmland, etc. Precious metals, along with other assets held in another country, can also provide the opportunity to move out of a difficult situation in one’s home country. In other words, precious metals play the role of insurance in people’s financial life, and much like other insurance products, they are designed in a way that people don’t gain from them. Insurance has a cost and people buy it just in case. So, if investors find themselves suffering from ‘gold fever’, buying gold and silver just to gain from the potential price appreciation, then they are not investors at all. They are speculators (gamblers), and they should keep in mind that metals have a nasty tendency to make huge price reversals. Case in point, on Friday, January 30th, gold prices dropped almost 10% and silver prices tumbled 30% in a single trading day!

**FED Chair **

Also on January 30th, President Trump announced his nominee for Chair of the Federal Reserve System (FED). The nominee, if confirmed by the US Senate, will preside over the Federal Open Market Committee (FOMC, which sets monetary policy) in June of this year. The nominee was Kevin Warsh, who had served as a FED governor from 2006 to 2011, and had developed a reputation as a hawk (tight monetary policy with a focus on inflation fighting). He was chosen over Kevin Hassett (currently Chair of the President’s Council of Economic Advisors) and Christopher Waller (currently one of the existing FED governors). Both Hassett and Waller are considered monetary doves (loose monetary policy with a focus on growth).

Judging from the reaction of markets after the FED Chair nominee announcement, it is clear investors would prefer Hassett or Waller to be the nominee. Stocks, bonds, precious metals, all declined during Friday’s session. In fact, one of the only things that went up was the US dollar. Presumably, investors think Warsh may keep rates higher than expected which could hurt asset prices. It remains to be seen how the markets will react in the next few weeks as they assess Warsh’s chances of getting confirmed by the Senate, as well as his current views on monetary policy.

What we know about Warsh is his views about the appropriate monetary policy during the Great Financial Crisis, which was 17 years ago. At that time, he was against the easy monetary policy of then FED Chair Ben Bernanke and advocated for raising interest rates even after the collapse of Bear Sterns and then the collapse of Lehman Brothers. That Kevin Warsh was an inflation fighter during a crisis which was then followed by a decade of deflation. Maybe the older and more mature Kevin Warsh feels different about monetary policy these days. On one hand, it is hard to believe he was chosen simply by promising to keep interest rates higher for longer. On the other hand, it is hard to believe people can change this much. One thing does seem certain; investors may tread lightly until they hear from Kevin Warsh about his current views on the path of monetary policy. Price adjustments may follow his first few interviews as investors assess his views as a threat or opportunity for future asset prices.

Catalysts

As investors, we are confronted with multiple possible threats and opportunities on any given day, which impact asset prices. Those who focus only on the threats are called “perma-bears” and are not well suited for investing in the stock market. For these types of pessimistic investors, bank and insurance products are more appropriate. And as we said before, depending on their level of fear at the time, canned food, bottled water, medicines, fuel, guns and ammo should be at the top of their list to buy.

On the other side, those who focus only on the opportunities are called “perma-bulls” and due to their rosy expectations about the future, they find no price high enough to pay for assets they like. These are the overly optimistic ones who borrow to the limit just to buy more assets at any price, helping to blow bubbles in financial markets.

Here at FFG, we are not “perma-bears” or “perma-bulls”. We constantly evaluate the threats and opportunities with an eye on which ones are materializing. If they are not materializing, they are not relevant, really just fears and hopes. But, if they are materializing, they become catalysts, either bullish or bearish for the markets, and should be considered when making investment decisions. Here are some of the catalysts we see taking place this year:

Bullish Catalysts:

1. **$1.2 Trillion in Tax Refunds are about to be deposited into household checking accounts. **Research shows that 25% of tax refunds go to discretionary spending, 20% on consumer staples, 20% go to savings, and 35% towards debt repayments. More spending and investing to come!
2. $1.4 Trillion in business bonus depreciation on their capital expenditures (from the passing of last year’s One Big Beautiful Bill). More spending and investing to come!
3. $2.1 Trillion in corporate capital repatriations incentivized by lower US tax rates. Research shows previous capital repatriations went to stock buybacks (40%), dividend payments (30%), mergers and acquisitions (20%), and capital expenditures (10%).
4. **Mega Bill 2.0 **is the continuation of the 2025 One Big Beautiful Bill to be voted under the Budget Reconciliation rules (only 51 votes needed in the senate). The Bill under consideration has many economic boosting provisions like reviving the housing market with proposed elimination of capital gains tax, mortgage portability between properties etc. Also, tax credits proposals for starting businesses, eliminating the federal estate tax, and creating a government alternative to the Affordable Care Act health insurance policies. We cannot know for sure which proposals will be included in the final Bill, but even a fraction of them will boost economic activity and therefore the markets could benefit. Obviously, the government has an incentive to pass the Bill by June before the midterm elections.
5. **Geopolitics seem to be going the way of the US at the moment. **With Maduro gone, and Iran’s Khamenei possibly forced out of control in Iran soon, key Chinese tools are removed as US threats. If the efforts of President Trump to end the war in Ukraine become successful soon, the US will be engaged in no wars and President Xi’s plan of engaging the US in 4 concurrent wars will become a distant one. Peace and prosperity are good for the markets!

Bearish Catalysts:

1. **Japanese Yen Carry Trade Reversal. **The yield on the Japanese 10-year bond keeps increasing, dragging with it the US Treasury bond yield. It may not seem like much but in the world of fixed income, even small changes have big consequences. In last month’s newsletter, we reported the Japanese 10-year yield at almost 2%. Now it stands at 2.261%. That is going in the wrong direction. If the US yields follow up, that is a bad sign for all asset prices. However, if the US yields do not follow up, then funds will leave the US to repay Japanese loans, which is also bad for US and international asset prices.
2. Private Credit Losses continue increasing. Apollo recently announced it wrote off 100% of a “protected” loan, which means they thought this loan was very well collateralized. How many more of those well collateralized zombies are out there? Blackrock’s TCP Capital Corp, a publicly traded Private Credit fund, also blew up recently on bad loans and wrote off 19% of its assets in just one day. Higher interest rates do not help their corporate borrowers to refinance or rollover the cheap loans they got 3-4 years ago during the post-Covid cheap money era.
3. Artificial Intelligence (AI) adoption rates could flatten out across all business sizes. According to Richmond FED’s CFO survey, 67% of firms report having no impact on productivity from using AI in their operations. Meanwhile, the big US technology firms keep spending hundreds of billions of dollars pursuing AI dominance. It looks good for the GDP growth rate, but the eventual reckoning from writing down these potential mal-investments could negatively impact stock prices.
4. Potential Late-Stage Bull Market. While the US stock market is still on an uptrend, it may be getting tired. The corporate earnings releases in January were good thus far, yet the market didn’t really push higher. The S&P 500 in January closed barely 94 points higher than December. That’s a sign of exhaustion. Stock prices are currently so high that even good earnings reports do not impress investors anymore. Other signs of a late-stage cycle are the Tech sector leadership narrowing, Energy sector surging, Health Care and Utilities finding their footing as demand for defensive sectors increases.

Overall, we believe that at the time of this writing the Bullish catalysts still outweigh the Bearish ones this year. While asset prices are high, it would be beneficial for the long term to see a correction of the 10%-20% variety this year. As we mentioned in our last writing, a market correction will give us a chance to go shopping for some of our favorite companies at cheaper prices.

We hope this writing provided you with a better understanding of how we see things evolving this year and how we are positioning portfolios. We are always available to share our analysis and insights with you.

Stay Fierce!