As we discussed yesterday, Jensen Huang delivered some big news on stage at Nvidia’s developers conference in DC — and it may have cleared the way for a melt up in stocks.

Why?

Let’s revisit this chart we looked at after Nvidia reported in earnings back in August.

Despite that, around those earnings the stock could only manage a choppy 11% pullback from all-time highs.

And now the top has been blown off.

What changed?

From what Jensen said on stage yesterday, the data center growth rate for Nvidia is about to rebound sharply.

That signal from the most important company in the world is a greenlight for markets and for the acceleration of the tech revolution.

Add to that, we heard from three of the tech giants today on earnings.

As you likely know, the “AI bubble” talk has been hot and heavy in the media, but it remains (quarter after quarter) hard to find things not to like with the tech giants.

The blended Google (Alphabet), Meta and Microsoft would be a rule of 57 company (average 18% revenue growth + 39% operating margin), trading at 32x earnings (ttm).

Together they’re deploying aggregate capex of $69 billion a quarter (which only widens the competitive moats) and still producing aggregate free cash flow of $61 billion.  Even if they were lighting the capex dollars on fire every quarter, the valuations still wouldn’t be stretched.

So, we have this reset on the Nvidia outlook, and what looks like a new leg of “melt up” in stocks — and then the Fed comes in today, cutting rates into it.

With that, not too surprisingly, Jerome Powell did his best to try to counter the market excitement.

In his prepared remarks, he said “a further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it.”  Then he said it again, in what looked like a planted first question from Nick Timiraos, the Fed-cozy WSJ reporter.

Powell followed with “there’s a growing chorus now … feeling like this is where we should at least wait a cycle…”

Bottom line:  The Fed can talk tough, but with a rebound in Nvidia growth coming and with the cash machine tech giants continuing to self-fund the AI build-out, the melt-up scenario looks likely — if no shakeup from the Trump–Xi meeting.

As we discussed in my last note, while the rhetoric on U.S./China relations heated up over the past two weeks, it seems the Trump administration would be happy to kick the can down the road again, with another “pause” on tariff escalations.  That would buy time to execute the domestic agenda under some relative global stability.

The meetings over the weekend between high level trade reps suggest that indeed will be the outcome.  That expectation has been set going into Thursday’s meeting between Trump and Xi.

With that, stocks broke out to new record highs today.  And the bubbling risk signals of just 10 days ago have now seemingly quelled.

We’ve been watching a technical reversal signal in gold.  So far that has predicted a 9% fall in gold prices over just the past six days.

And today, we get a break of this big trendline …

Remember, we followed this parabolic move in gold over the past six weeks.  The timeline mapped closely to the EU’s plan to send €140 billion of frozen Russian assets to Ukraine.

And as we discussed, if a nation’s money can be confiscated, the trust that underpins all fiat currency (a government IOU) is weakened.

It safe to say China has been watching closely.  They hold roughly $730 billion of U.S. Treasuries — and gold is the safe haven outlet.

Not coincidentally, the top in gold at this point aligns with the reports out of the IMF and World Bank meetings ten days ago — that said the Trump administration would not support the EU’s plan to use (confiscate) Russian assets.  Trump reiterated that stance today in a press conference on Air Force One.

Again, that reduces the “confiscation/distrust premium” in gold.

Adding fuel to the gold correction, as we head into the Fed this week, inflation expectations have been on the move, lower.

What the Fed cares most about is losing control of inflation expectations.  Clearly, that’s not happening.

As you can see, at 2.19% it’s tracking toward 2%, it’s back to May levels, and it’s below the levels of last September, when the Fed started the easing cycle with a 50 basis point cut.

We’ve talked about the reversal in the precious metals.

For gold, a technical reversal signal came on Friday when the CME raised margin requirements.

And then yesterday, gold had one of the steepest one-day declines of the past 45-years.

As we’ve discussed, margin increases have often been a common trigger, or fuel on the fire, behind those extreme one-day declines dating back to 1980.

Another common theme, deflationary forces.  Even in these rare, extreme selloffs, the drag of deflationary forces on gold prices has outweighed the safe-haven feature.

With that, let’s take a look at this very important chart.

This is the ratio of gold prices-to-oil prices.  As you can see, we are at an historic extreme (the far right of the chart).  The only more severe period was during the covid lockdowns, when oil prices went negative!

So, what is this telling us?

Well, while gold prices have gone parabolic (UP), oil prices have fallen 12% over the past month, breaking down from the low-end of a four year trading range.

The move in oil is not only a deflationary signal, but it’s also a deflationary force.  The persistence of low oil prices, and now this leg lower, will feed into headline CPI.

We know from real-time CPI inputs (like new and used cars, rents) that prices have been flat, and in some cases down.  The government’s report just hasn’t caught up … yet.

With that, given the Fed’s slow path to ease, real rates (Fed Funds Rate minus inflation) seem to be rising in the underlying economy (i.e. a tightening effect, as actual inflation may be falling faster than the Fed Funds rate).

And rising real rates have historically marked points of exhaustion for big gold runs.

All of this said, oil bounced sharply today (up about 4%) after the Energy Secretary said it was a good time to restock the Strategic Petroleum Reserve, and after the White House announced new sanctions on Russian oil companies this afternoon.

So, we may be seeing the first signs of a floor in oil — and with it, perhaps the first sign of a cap in gold (and the normalization of this ratio).

Yesterday we talked about bearish technical reversal signals in gold, silver– and in Nvidia. 

Today we got follow-through in gold and silver.  Gold was down more than 5%, silver down more 7%.  

As you can see in the chart below, a decline of this magnitude in gold futures has only happened six times in 45 years.

What was happening in these past episodes of extreme gold declines?

In 2013, gold had an 8% drop on a Monday, following a nearly 4% drop the prior Friday, for a worse combined two day loss since 1980.  There were reports fiscally troubled Cyprus had agreed to sell a chunk of gold reserves as terms of a bailout.  The gold selling was exacerbated when the CME increased margin requirements on gold trading. 

In September of 2011, gold was on record highs, and dropped 5.7% and went on to a 13% six day decline.  Greece was teetering on the edge of default, the Fed started operation twist (not more QE).  With deflationary pressures, the gold selling started, and then came a CME margin requirement hike (in addition to its August margin hike) — more selling.

On October 10th of 2008, gold traded down 7.6%.  This was the worst day of a ten day decline of over 30%.  This is shortly after the failure of Lehman, and peak liquidation phase.

In June of 2006, gold traded down 7% in a day.  A hawkish Fed was curtailing inflation, growth was wobbling and the yield curve inverted.  There was a broad rout in the commodities markets. 

In 1983, gold was in a three year bear phase.  Gold had a down 6% day, on the day Reagan was interviewed, where he dismissed any “quick fix” to recessionary conditions.  The theme was high interest rates, to continue the disinflation trend.  That means high real rates — and high real rates is a headwind for gold. 

In 1980, gold had just had a 25% run over just 12 weeks, trading to a new record high of over $800.  Exchanges were tightening margin requirements in precious metals (spurred by the famous silver squeeze).  The euphoria turned to liquidation. 

A common theme in these rare declines is margin hikes.  And we had a margin hike from the CME on this past Friday — setting initial margin to trade gold futures at 27% higher vs. a month ago. 

The VIX traded above 20 for a fifth straight day and is now north of 24. 

That’s the zone where policy-induced shock waves have tended to surface and, notably, where they’ve also been reversed by some degree of policy response.

You can see it in the timeline on the chart: euro and U.K. bond market shocks, the SVB episode, the yen carry unwind, tariff uncertainty.

Adding to the trade war escalation of recent days, today we get some stress bubbling up in the banking complex. The KRE (regional banks) fell more than 6%. Gold rose 2.5%, now up ~11% in nine trading days.

The questions: Is this move in gold the acceleration of the fiat-debasement trade?  Or is it a safe haven bid — on a potential fire where there’s smoke in regional bank credit, or on a broader liquidity issue/shock brewing?

Jerome Powell said on Tuesday, “some signs have begun to emerge that liquidity conditions are gradually tightening.”  Translation: the Fed sees the cracks forming.

The market seems to be sniffing out both scarcity of liquidity and scarcity of sound money.   

Yesterday, we talked about the setup for a potential market correction, led by some negative technical signals, not the least of which come from the most important stock in the world:  Nvidia.

And today, the Trump administration confirmed that the geopolitical trigger that may drive it isn’t going away.

At a press conference this morning, Trade Representative Jameson Greer and Treasury Secretary Scott Bessent laid out, in detail, the severity of China’s rare earth export control threat.

They called it a “global supply chain power grab,” and a form of “economic coercion on every country in the world.”

Greer went on to outline the scope, which would give Beijing effective control over any global product containing even 0.1% of Chinese-mined minerals.

That would cover semiconductors, EVs, batteries, and even basic consumer products.

As he put it, “This gives China control over basically the entire global economy and technology supply chain.”

Bessent followed by framing the moment with the most direct language yet from the administration:

“Make no mistake, this is China versus the world. We and our allies will neither be commanded nor controlled.”

He went on to confirm that the White House is working in close coordination with Europe, India, and the democracies in Asia — all of whom are similarly affected.

Is this the “isolate China” phase we’ve been anticipating?  It’s looking likely.

Importantly, while emphasizing that the U.S. seeks to “de-risk, not decouple,” the message was clear, “if China wants to be an unreliable partner to the world, then the world will have to decouple.”

Add to all of this, in the press conference today, Bessent also revealed this very important nugget about the U.S./China negotiations that have been ongoing for months.  He said in late August, a Chinese trade delegate threatened that “China would cause global chaos if port shipping fees go through.”

These are hefty fees announced last April to be levied against Chinese ships entering U.S. ports — to go into effect October 14th (yesterday!).

So, we have a flashpoint here in the trade war.  And we have to wait weeks for an event that could offer clarity (a potential Xi/Trump meeting, the trade pause deadline, and the China export control effective date).

With the above in mind, the market’s perception of the risk environment is recalibrating.

The VIX has been trading above 20 for four consecutive days.

That tends to come with lower stock prices.

And as we’ve discussed, in recent days, a correction in stocks tends to get a policy reaction from the Fed.  The National Bureau of Economic Research (NBER) did a study on it.  Since 1994, a 10% stock market correction predicted a 32 basis point reduction in the fed funds rate — and a 127 basis point decrease after one year.

In this environment, getting the Fed moving on rates could ignite the needed next leg of the re-industrialization cycle — and with urgency, maybe a new “operation warp speed” to address self-sufficiency in pharma, semis, rare earths, ship building, etc.