SPEAKER_00 0:00

You know how um when you hear a hurricane is coming, the first thing you do is board up your windows. It's just human instinct to seek safety. But like imagine a category five storm hitting and everyone in town just decides to leave their front doors wide open.

SPEAKER_01 0:14

Yeah. I mean, you'd assume they were either completely detached from reality or, you know, they were terrified of something even more dangerous that's already inside the house.

SPEAKER_00 0:22

Aaron Powell Exactly. And today's deep dive is about that exact scenario playing out right now in the financial markets. We are unpacking a massive market contradiction to figure out what the financial world is actually afraid of right now. And uh we're using a July 13th, 2026 pre-market briefing from Canon Trading Company.

SPEAKER_01 0:43

Right. And a big thanks to the author, Eli Levy. You can reach him at Eli at Canon Trading.com, by the way.

SPEAKER_00 0:48

Yeah, because over the weekend we saw two massive global shocks. First, you had that Korean memory chip route that just completely tanked the Nasdaq.

SPEAKER_01 0:55

Oh, yeah, that was brutal. And then second, renewed hostilities between the US and Iran effectively closed the Strait of Hormuz. So that pushed crude oil up over three percent.

SPEAKER_00 1:05

Which is wild because by all traditional logic, investors should be rushing to safety. I mean, supply chains are breaking and literal missiles are flying.

SPEAKER_01 1:14

But here is the crazy part. The ultimate safe haven asset, you know, gold, actually fell below forty one hundred dollars.

SPEAKER_00 1:22

It's that hurricane scenario again. It's like boarding up your windows but leaving the front door.

SPEAKER_01 1:26

Leaving it wide open. Yeah, it really is a massive contradiction that we need to unpack.

SPEAKER_00 1:30

Exactly. Before we diagnose the market's true fear, here is a required note on risk. Disclaimer. Trading futures, options on futures, and retail off-exchange foreign currency transactions and other financial instruments involve substantial risk of loss and are not suitable for all investors. Past performance is not indicative of future results, so carefully consider if trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment, and opinions, market data, and recommendations are subject to change at any time.

SPEAKER_01 2:03

So getting back to it, the Strait of Hormuz is closed and gold drops.

SPEAKER_00 2:07

Right. And the briefing notes, this means the market fears inflation and interest rate hikes way more than geopolitical war. But let me push back hard here, though. Gold has been the ultimate inflation hedge for centuries.

SPEAKER_01 2:22

Oh, for sure.

SPEAKER_00 2:22

So if the market is terrified of inflation from this oil shock, shouldn't gold be skyrocketing right now?

SPEAKER_01 2:28

Well, that is the intuitive way to look at it, but um, it misses the actual mechanics of how central banks fight inflation. Like when inflation spikes, the Federal Reserve raises interest rates. Right. And higher interest rates push up the yield on things like treasury bonds. Trevor Burrus, Jr.

SPEAKER_00 2:42

Got it. So bonds start paying you more just to hold them.

SPEAKER_01 2:45

Exactly. Gold, on the other hand, yields zero. It just sits in a vault, you know?

SPEAKER_00 2:49

Right, doing nothing.

SPEAKER_01 2:50

Right. So as bond yields rise, zero yield assets like gold become much less attractive to institutional investors. They just dump gold to buy bonds. So gold isn't ignoring the inflation risk, it's reacting to the cure for inflation, which is higher rates.

SPEAKER_00 3:06

Wow. Okay. So the market is pricing in the cure, and the catalyst for that cure is energy. Like Eli's briefing highlights, there are 6,000 seafarers currently stranded in the strait.

SPEAKER_01 3:17

Yeah, it's a massive bottleneck right now.

SPEAKER_00 3:19

Right. And while Goldman Sachs thinks Brent crude will normalize to $80 a barrel by the end of July, Bank of America warns of a $130 tail risk if this double blockade drags on.

SPEAKER_01 3:31

Which is an extreme low probability event, sure, but um it would cause severe economic damage.

SPEAKER_00 3:37

Oh, absolutely.

SPEAKER_01 3:38

Because that supply chain chaos directly fuels inflation. You know, oil goes up, shipping slows down.

SPEAKER_00 3:44

Which brings us right to Tuesday's upcoming June CPI report. With that sticky 2.9% core inflation trend, doesn't that make the data a massive tripwire for the Fed?

SPEAKER_01 3:54

Oh, without a doubt. I mean, Fed chair Kevin Warsh recently noted inflation risk had eased. Right. Yet the CME FedWatch tool shows a 75 to 84 percent probability that the Fed just holds rates steady at their July 28th and 29th meeting.

SPEAKER_00 4:07

Wow. So they're basically trapped.

SPEAKER_01 4:09

Yeah. They are totally trapped between a slowing tech sector and a surging energy shock. It's a reflation versus tightening tug of war.

SPEAKER_00 4:18

And if the fear of U.S. interest rates staying high is heavy enough to crush gold, what is it doing to global currencies? Because, like you look at the Japanese yen and it just hit 40-year lows against the dollar.

SPEAKER_01 4:29

Yeah, and that's even though the Bank of Japan just hiked their own rates to 1%.

SPEAKER_00 4:34

Exactly. They adopted a hawkish tone, signaling they want to keep rates high, but the yen still drops.

SPEAKER_01 4:40

Well, think of U.S. interest rates like a giant financial magnet. Even if Japan raises their rates slightly, the U.S. magnet is just so strong right now that it pulls capital out of the yen and into the dollar. The yield differential is simply too wide.

SPEAKER_00 4:53

Aaron Powell The cost of money is dominating everything. I mean, even localized events like Arabica coffee punching above $3.50 a pound due to erratic Brazilian weather.

SPEAKER_01 5:03

Yeah, that just adds another layer to this broader supply-side inflation panic. The overarching theme for investors right now is that the fear of a rate hike casts a much longer shadow than the fear of a geopolitical crisis.

SPEAKER_00 5:15

So if you're listening and looking at your own portfolio, just remember the market is pricing the cost of money over the cost of conflict right now.

SPEAKER_01 5:23

Which leaves you with a really interesting thought.

SPEAKER_00 5:26

Right. If global markets have become completely numb to massive geopolitical shocks like a closed straight of hormouse, what kind of black swan event would it actually take to trigger a traditional safe haven panic today?

SPEAKER_01 5:39

That's the big question. It really forces us to redefine what safe even means in a high rate environment. And a huge thank you again to Canon Trading Company and Eli Levy for the source material today. You can reach them at Eli at Canon Trading.com.

SPEAKER_00 5:53

Exactly. And here is our mandatory closing reminder. Disclaimer. Trading futures, options on futures, and retail off exchange foreign currency transactions and other financial instruments involve substantial risk of loss and are not suitable for all investors. Past performance is not indicative of future results, so carefully consider if trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment, and opinions, market data, and recommendations are subject to change at any time.