Christopher Aaron on Mastering Precious Metals Markets: From Military Intelligence to Gold and Bitcoin Analysis

What happens when a former military intelligence officer decides to navigate the intricate world of gold and precious metals? Join us as Christopher Aaron reveals his extraordinary journey from the battlegrounds of Afghanistan and Iraq to becoming a savvy market analyst. Christopher's personal anecdotes shed light on the flaws of mainstream narratives and the power of precise technical analysis in understanding market trends. He emphasizes the significance of price as a true market indicator and shares the challenges of assessing the real value of commodities like gold.

Ever wondered why large-cap gold miners are lagging despite gold's impressive gains? We explore this puzzling scenario and its implications for investors. Christopher also engages in a thought-provoking comparison of gold versus Bitcoin, influenced by recent legislative changes in the U.S. Our discussion extends into the macroeconomic factors affecting precious metals, including the evolving correlations between gold, interest rates, and currencies. This episode is a treasure trove of insights for anyone keen on deciphering market behaviors and refining their investment strategies.

The content in this program is for informational purposes only. You should not construe any information or other material as investment, financial, tax, or other advice. The views expressed by the participants are solely their own. A participant may have taken or recommended any investment position discussed, but may close such position or alter its recommendation at any time without notice. Nothing contained in this program constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in any jurisdiction. Please consult your own investment or financial advisor for advice related

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Transcript

Speaker 1: 0:00

My name is Michael Guy, a publisher of the Lead Lag Report. Join me for the roughly 40-minute time period is Mr Christopher Aaron. Chris, you have a really unique backstory, which I wouldn't normally think of when I see your profile and your love of gold and precious metals in general. But introduce yourself to me and to those that are watching. Who are you, what's your background, what have you done throughout your career, throughout your life, and how did you make this transition into the investment side?

Speaker 2: 0:28

Yeah, thank you so much, Michael, for having me. Basically, my career began in the military intelligence world. I was a 9-11 generation. I was a junior in college when the attacks happened on the World Trade Centers, and so that was really a formative period in my life. I wanted to do something in honor of my grandfather who fought in Europe during World War II. I wanted to fight the good fight for my generation, so to speak, and so I wasn't ready to enlist in the military itself back in 2003 when I graduated from university. But I wanted to go into that field, so I joined one of the military intelligence agencies. They ended up sending me to Afghanistan. There was sort of a lateral opening.

Speaker 2: 1:15

Once I was in one of the first agencies, I spent some time at the CIA, I was in Afghanistan, I was in Iraq two deployments, a total of a year overseas and really this was like 2006, 2009. I just rewatched the Matrix, the original one. I hadn't seen it in like 20 years. I had this sort of awakening moment, also similar to you know we think about 1984, the main character who has this, you know, he's part of the inner circle, so to speak, or part of the machine, and he has this awakening in my own way, seeing the war with my own two eyes and participating in it two eyes and participating in it. I worked on the military drone program, but I was with the soldiers, had a gun on the military base. Seeing it, participating in it with my own two eyes, really resulted in a level of an awakening for me that I was not expecting. This was my career right out of college.

Speaker 2: 2:23

Long story short, I went through a real tough period back in 2009, 2010,. Sort of a dark night of the soul, having to re-find myself. What is it that I wanted to do with the next part of my life, given that I no longer felt that I could support the direction that the wars were going in? Not that I'm anything less of a patriot. I love this country, I love the freedom that the United States stands for. But I saw again I'm going to come back to this theme with my own two eyes that what I was being told from the politicians and from the mainstream media was not what I was seeing on the ground, and I just said I can no longer align my life and my career with this type of trajectory. So I just took a huge step back, took some time off and I said what is one of the solutions, what's one't print and distribute to favored groups, military, industrial complex, banking consortiums, et cetera, et cetera. So I shifted my entire life, aligned it with precious metals and market analysis.

Speaker 1: 4:02

That point about the narratives that the media gives and that politicians give versus the reality when you're on the ground, I think is interesting. Do you think it's always been like that, or is there something about moderate communication, about technology, about large data? That creates even more of a distortion of the story versus the truth?

Speaker 2: 4:25

creates even more of a distortion of the story versus the truth. You know, if I was alive and had been drafted during World War II, perhaps I would have a different take on this or I would be able to compare. Unfortunately, for our generation, the only thing we can do is read the history books and watch the documentaries, I mean, and maybe listen to a few of the people that actually fought that good fight. To me it's very difficult to compare what I lived through to some of the more righteous, let's say, conflicts that we've engaged in over the last 100, 150 years. But I will say that there is this theme that I've really embraced and it applies to the markets as well. But really the theme is not trusting per se what one is told, just at a surface level.

Speaker 2: 5:19

There's a lot of people trying to sell stories. They're selling stories about wars, stories about markets, stories about markets, stories about various industries that are going to rise or fall. When you observe things and look at them with your own two eyes and make your own decision, that is the most powerful way to be a human being on planet Earth and the way that this then gets into the markets. What I've gravitated toward as far as analyzing markets, is price analysis, technical analysis as some people call it, but I simply call it reality analysis. I mean the price is the reality of the markets. Everyone else is sort of trying to sell stories about what may happen in the future and I prefer to analyze price as the closest thing to reality that we have.

Speaker 1: 6:11

It's interesting when you're trying to figure out what the price of various precious metals should be, because there's no clear valuation metric, right? In the sense of you don't have a cash flow when it comes to looking at commodities versus companies, and you and I both know that the price is purely subjective, no matter what, because it's whatever somebody's willing to pay, right. Let's talk about the field of technical analysis when it comes to commodities versus other asset classes. My father used to be other asset classes. My father used to be a technician himself and he always made it a point to say that price is a reflection of all the wisdom and ignorance of the crowd, and you don't know if it's more ignorance or if it's more wisdom, right? Except maybe-.

Speaker 2: 6:58

I agree.

Speaker 1: 7:00

Right. So how do you know if price is truth? I guess, when it comes to gold, precious metals, We'll get into some of the analysis, but let's go through that because I think that's really critical.

Speaker 2: 7:09

Yeah, the way that you know whether price is truth or price is sustainable, let's say, is that if it's not, you will see certain moves in one direction, let's say a breakout higher or a breakdown from a consolidation that then will quickly reverse. That's one signature that I've learned to make note of that shows me that a market was fooled, a market was wrong at a key turning point. For example, if we go back to gold, if you think about what's just happened here let's just talk about the last five years for a second We've seen basically a consolidation in the gold price between 2075 on the upper side and 1680 on the lower side, to talk about spot prices. Four years of this consolidation in a fairly wide band. But if you go back to September of 2022, so a little less than two years ago there was a violation of that very clear lower support 1,680. It violated that for about six weeks Now. It didn't plummet, it didn't collapse, but it violated that and it looked like, hey, this is a breakdown. It looks like we've just seen a big topping pattern here.

Speaker 2: 8:30

But so the wisdom of sort of the markets when is it a real move, when is it a fake move Is staying with it. You know, even if a market gives you a bad signal, a breakdown, staying with it, is this a legitimate signal or not? In the case of gold, we fast forward six weeks into late October of 2022, when gold recovered that 1,680 level on a weekly close, I said to myself hey, that past little breakdown was a false move. It was a false move to the downside. And then, from studying technical analysis, we know that from false moves come fast moves in the opposite direction. And so what did we see? Like a $450 move higher in six months following that breakdown. So I would just say that, michael, there are these signatures and no one's going to get it right 100% of the time Not myself. I make mistakes as well. All disciplines have their blind sides, but when we try to focus on these signatures, that can at least help us to sift through the legitimate moves from some of these fake moves.

Speaker 1: 9:40

Now, of course, you're talking about it from a trading perspective and since you mentioned 2010, 2011, kind of, you started doing that pivot. That was around the time that gold roughly peaked right, it was what I think 2011, 2012. I used to write for MarkerWatchcom and whenever I would put an article that was slightly negative on gold because I thought it was nearing some kind of a peak, the gold bugs would come out. If you remember back then, the gold bugs of then are the Bitcoin maxis of today, sort of extreme sentiment, the insulting. You're wrong, the stock system is going to collapse and all that stuff. Talk about that period of nothingness. So you're obviously meeting sideways action. Largely right, because it's only now that gold is starting to get interesting, but it took a long time to get to this breakout moment.

Speaker 2: 10:31

Yeah, and I'm not a permabull on any one asset class. I was not in the precious metals markets at all from call it late 2011,. After I saw that very clear impulsive breakdown 2011,. After I saw that very clear impulsive breakdown through 2015, I started publishing um, you know this current business in 2015,. I didn't get the bottom exactly right, but I got it within about three months. You know I was looking at that longer term support around a thousand dollars, saying hey, risk to reward, this is probably a good place to start getting involved in in the precious metals markets, you know so. So that call kind of has lasted through the present moment.

Speaker 2: 11:10

We've been in this rising trend here for the last nine years. This cycle is going to top Eventually, this cycle is going to top as well, and that it will no longer be appropriate to be as aggressive in the precious metals or to be focusing on it nearly as much as I have been. And I have to separate. There's two sides of me on this. One is that I have a philosophical side right, based on what I experienced in the wars, what I saw as far as government excesses. You know that is only really possible in an era of uncontrolled fiat currency, you know, and so philosophically I support. Hey, if there was going to be a referendum and I could put my signature on it or vote this November to go back to a gold standard, absolutely I would do that or some other sort of hard standard, absolutely I would vote for that.

Speaker 2: 12:04

However, as a pragmatist, as a technician, I can also tell you that there are going to be times, even if I would support gold going back on to a standard, to back the US dollar, there are going to be times where gold is simply in a bare market because other asset classes are in favor. For five years, for 10 years, even for 20 years. Look at 1980 to 2000. Was there inflation the entire time? Of course. Were they debasing the currency? Of course, but gold was simply out of favor because other markets were progressing. So I have those two sides of me and that's okay.

Speaker 2: 12:38

I don't think we need to be permables on any one asset class. I'll simply say that for the time being, I have a target of $2,535 for gold. It's about $200 higher than we are today and I have a target for silver assuming it can stay above 30 here and consolidate, I have a target of $42.50. Those are my official targets. We could overshoot my targets by a little bit a few more months. Silver could get back to 50. Gold could get into the upper 2000s, maybe even print a three handle. But after that I'm looking at seriously taking some major chips off the table and saying what is the next asset class that is going to emerge? And I fully admit I don't know what it is yet and I'm going to say market, you show me.

Speaker 1: 14:06

Since you mentioned cycles, what do you think has the potential for a longer cycle Gold, silver as commodities or the mining stocks? Now I'm saying that purposely, because the reality is the mining stocks, yes, there is some relationship to the underlying commodity, but not necessarily right. I mean they can move based on other things in terms of management, in terms of new discoveries, in terms of how oil impacts extraction. Talk about the mining side and if you think there might be some more longevity in terms of the trend playing out that way.

Speaker 2: 14:44

Yeah, you know, and the mining sector has been so disappointing in this entire cycle. You know the GDX just as an example. I mean the GDX is trading in the low 30s. What did it close out for? Friday Closed at 35. I mean, this level was hit. I mean in 2016, the GDX peaked at 32. At that peak of 32 for the large cap gold miners, gold was trading at $1,300. So gold has risen by $1,000 in the last eight years and the large cap miners are trading at exactly the same level as they were trading at when gold was $1,000 lower. So the mining business has really underperformed the metals.

Speaker 2: 15:33

There are a host of reasons why this is the case, but I'll make the point that I believe the main reason I believe the evidence support this is that, as we've seen the price of gold more than double in the last 10 years, the general equity market has also doubled simultaneously. If you go back to 2015, dow Jones Industrial Average was half of what it was today. It's now doubled and this is the first time in history. I've gone back and looked at every precious metal cycle since freely trading gold in 1971. This is the first time in trading history for gold that both gold and the general equity markets have doubled simultaneously. In each of the previous bull markets for gold, you've had general equity markets contracting. 1970s, general equity markets were falling the entire time, 2000 to 2011,. There was a lot of volatility, but that period sort of ended with the global financial crisis into 2009,. Right, volatility, but that period sort of ended with the global financial crisis into 2009, right.

Speaker 2: 16:41

So, coming back to the mining sector, the reason why the mining sector has been so underperforming here for the last number of years is because the average investor who in previous cycles would have looked at their 401k or, in Australia, their superannuation fund or Canada, they have the same thing retirement funds the average investor that in previous cycles would have seen gold outpacing the stock market and saying, hey, I should move some of my assets into gold because it's been outpacing general equity markets for two, three, five years. That investor has been completely absent the precious metals market in the cycle, because their 401k and their index funds have done just as well as the bullion price. So there's hardly any speculative bid in the precious metals sector whatsoever and as a result of that, the valuations on the mining companies have compressed to a level that has never been seen before in the history of mining stocks. I'm talking about companies that have measured and indicated gold on their balance sheet that is trading for $5 per ounce in the ground. And you just go back to the previous cycle and gold at that stage was trading for $50 to $100 in the ground when bullion prices were the same as what they are today. So you had a 10 to 20x multiple on the valuations of gold in the ground, simply when psychology was higher than it is today on the overall sector.

Speaker 2: 18:06

So I mean from a reward to risk perspective, I would say right here, if someone's looking at this and saying, hey, I have a discretionary capital, this is not my emergency fund, this is not my savings account to put a down payment on a house, but I'm trying to maybe hit a home run or hit something really good here over the next two to three years, I would say, yeah, I mean, look, if gold goes from 23 to 2,500, all right, that's 10%. Probably people are not going to get rich off a 10% move, right. But if the valuations on these mining companies improve just off the lows that they are now, you could have a multiple from that level. So I think that the mining sector is extremely cyclical. There are reasons why these mining stocks underperform and there are also reasons why these mining stocks outperform at certain intervals. I'm not buy and hold on any sector in the world for too long.

Speaker 1: 19:13

Got a question off of YouTube from Michael K. I actually hadn't looked at this until I was literally just Googling and Azure chatting. What does Chris think about the growing number of states that have removed state cap gain taxes I think it's more on the sales tax side, as I understand it, for gold and silver and or have made it legal tender? So there is this, I think, narrative out there which I think is valid, that governments like gold for themselves but don't like it relative to fiat, obviously because it challenges their authority. But it does look like, from what I've seen, there are some interesting at least on a state level things that are happening as far as government taxation. Any insights there?

Speaker 2: 19:49

I mean, personally I love it. You know, it's great to see, you know, certain states, the more libertarian leaning states, are doing this sort of thing right now. I mean, you know, in my opinion it's an abomination that there's sales tax on precious metals. We just go back to the Constitution and we look at, you know, no state shall coin any money that is not gold and silver. That is not gold and silver. And so now here, for the last 50 years, we have this experiment with an unbacked fiat currency and now state governments the majority of them somehow think they can tax what used to be money. It's the state of the world that we live in now. It's certainly a step in the right direction. I'm not sure that it's going to make a groundswell of difference, but every little bit counts, so I'm happy to see it.

Speaker 1: 20:37

Let me hear you difference, but every little bit counts, so I'm happy to see it. I'm sure you, like probably most big fans of gold, are tired of the debate about Bitcoin. But since you mentioned the sovereignty side and that end of things, why not Bitcoin as opposed to gold? Or is it not as simple as just one or the other to have both?

Speaker 2: 20:57

Yeah, and so, similar to what I said about gold and precious metals, I'm never a permable. There will come a time where this cycle ends. Yet at the same time, I could support, let's say, moving back to a gold standard from a philosophical level. When I look at Bitcoin, I'm going to split myself in two here once again, and it's going to seem like I'm talking out of two sides of my face, but I'm really trying to make two points that I hold strongly at the same time, so I hope people can hear me with that. One is that you know, philosophically I think precious metals with crypto investors.

Speaker 2: 21:57

Second thing I want to say is I'm a trader as well. I trade futures, I trade options. I'm not only a long-term investor, and so to anyone out there who has traded or had a good holding on crypto or on any asset, I always say congratulations. I have people that email me to tell me they traded some ETF, they had a 10% or 20% profit in a few days. I'm like congratulations, go out, celebrate, treat yourself to something. You always have to celebrate a win. So anyone who's made a good profit on crypto or Bitcoin, hear me congratulations.

Speaker 2: 22:31

The place where I disagree that Bitcoin can end up becoming a standard, in the same way that gold has been in the past, is that I disagree that the moat for Bitcoin is large enough to eventually prevent a leeching out of capital from Bitcoin and into all of the other cryptocurrencies.

Speaker 2: 23:06

I don't think that moat is as powerful as people believe it is right now, and so I believe Bitcoin is competing with all the other cryptocurrencies and when I last checked, there seems to be no barrier to entry, no legitimate barrier to creating new cryptocurrencies. And so, from a fundamental standpoint even though, again, I say to anyone who's had a good olding, congratulations I think that the supply of all cryptocurrencies trends towards infinity over the next 10 to 20 years, and anything where the supply of an item or a category is trending toward infinity, the price should trend towards zero. So I believe, eventually the price of Bitcoin will trend towards zero. So I believe, eventually the price of Bitcoin will trend towards zero. But in between now and then, maybe it goes to 100,000., maybe it goes to a million or 10 million. I'm perfectly open to that and I'm also open to trading it higher before I see signals that it goes and eventually trends toward that level. But that's the reason why I don't support cryptocurrencies as a backing to a national currency.

Speaker 1: 24:23

Let's talk about the macro environment, what's supportive and what's not. It used to be the case that gold would benefit from negative real rates. And here we are and you don't have negative real rates, unless maybe it is, unless CPI is way higher, inflation is way higher than the rates set by the Federal Reserve. But what is a tailwind and what is a headwind from a big picture perspective?

Speaker 2: 24:52

On precious metals. Yeah, yeah, you know, negative rates has been something, although it's interesting. If you look at, for example, when did gold bottom in this cycle? After the top in 2011, gold bottomed in December of 2015, two days after the first Federal Reserve interest rate hike in a decade, and I remember that specifically. I actually wrote an article about it. It's why I started publishing at that time is because I thought the mainstream narrative that higher rates are going to be bad for gold. I thought they were wrong. I thought gold was actually going to bottom and start rising with higher rates.

Speaker 2: 25:39

For example, if you look at the cycle in the 1970s, gold and interest rates tracked each other almost perfectly up and down. As interest rates were rising, gold was rising. In the 70s, in the mid-cycle corrections in interest rates, gold would fall. So I'm not necessarily a believer that even nominal or real interest rates are ultimately the main driver for gold.

Speaker 2: 26:04

For about 10 years, we had this amazing correlation between Japanese yen and gold where, functionally, the Japanese yen was being treated as the same asset class as gold. They were just trading on a one-to-one lockstep for 10 years, 2011 to 2021. And I remember everyone at the time in 2019, 2020, 2021 saying hey look, japanese yen is weak, we can short gold. Or Japanese yen is bottom, let's go long. Gold right. And then all of a sudden here in the last three years, that correlation and that sort of tightness between those two apparently disparate markets has just been blown to smithereens. There is zero correlation now between the Japanese yet, or it's one of the most negative correlations that we've seen in freely traded currency history.

Speaker 2: 26:50

So these fundamentals come and go Ultimately, yes, you know, gold is a vote of non-confidence on the value of fiat currencies ultimately. But that's like super big picture. You have to zoom out to the generational or the century timescale for that analysis, to that fundamental analysis, to really be true. I'll tell you, michael, you know, in my, in my later years now, I've really gravitated to the camp of all I care about is what the price is doing, and we can talk about these fundamentals until you know, the cows come home. But I want to just focus on the price. It's really the only thing that matters.

Speaker 1: 27:38

I want to go back to your time on the CIA and the military end, because the vote of no confidence against fiat is ultimately a vote of no confidence that debt can ever be contained. And you and I both know that. One of the reasons debt can never be contained is because incentives are misaligned and, let's face it, there's a lot of money that goes to defense spending. And, going back to your point about what the media, what politicians, tell you versus what's happening on the ground, can we ever get to a fiscal point where things are just not as excessive when it comes to the military industrial complex? Because it seems like that is what would be the headwind against gold. It would basically be a reduction of military spending.

Speaker 2: 28:24

Yeah, I mean this really gets into this big picture question about the nature of democracy itself. Is democracy a stable form of government or a form of government that can really last throughout the ages? I've seen some really good debates kind of talking about how democracy is really only a temporary form of government in the big picture analysis, because once the majority realizes that they can vote for whichever politician is going to promise them the most goods from the public treasury, they just do that until the treasury is bankrupt and the currency ends up going to zero. But then again all of us are only alive temporarily. I mean that analysis could be true right where this system of just voting for whichever politician promises its constituents, its constituents, the most goodies. That's not sustainable and so eventually we, you know we devolve into a dictatorship of some sort or anarchy. That could very well be true, but maybe it doesn't happen in our lifetimes. But maybe it doesn't happen in our lifetimes.

Speaker 2: 29:40

So I think we need to kind of be open to all these ideas in the pragmatic sense. In the near term, I absolutely support limiting our involvement in overseas wars that we're not directly involved in, where we have not been attacked directly, which has been most wars since World War II. So I would vote for whichever politician tries to limit that kind of spending. But it's not only war spending, it's also bailing out banks, bailing out institutions. It's not only the military industrial complex, these days it's the pharma, medical complex, right, and whichever one is sort of the latest one to grab control of the politicians, I'm definitely more in. The less government is better camp.

Speaker 1: 30:29

Chris, there are remaining a couple of minutes here. I want you to talk about iGold Advisor. What is it you're trying to do there?

Speaker 2: 30:36

Yeah, so iGold Advisor is basically. The genesis of this was back in 2007, 2008, when I was getting involved in this sector and I saw so many of those fundamental analysts, the ones telling the stories. You know who I'm talking about. I'm not going to name any names, but the guys who tell stories and the stories sound great. They sound really realistic, really believable, and we can be really sympathetic to the stories.

Speaker 2: 31:06

But what I observed in 2008 was that we can have these fundamentals correct and then, in the crash of 2008, what happened? Silver fell more than the general stock market, more than the Dow or the S&P 500. The gold mining stocks fell. I'm not joking If you guys think you've seen volatility, if you're involved in this sector. In the crash of 2008, these mining companies fell by 90 to 95% in six months, not just an isolated one or two companies, all of them. I dare you to go back and pull up a chart from the crash of 2008 of your favorite mining stock and see how much that fell when the precious metals were supposed to be the safety net in the global financial crisis.

Speaker 2: 31:51

So the genesis of iGold Advisor was to say it's not enough to simply be aligned with those fundamentals. We have to pay attention to what the market is actually doing, similar to when I was in Afghanistan and the politicians and my military commanders were all telling me A, b, c, but really it was X, y and Z that was happening on the ground. I liken that to how I approach the precious metals markets what is actually happening, not what are we being told is happening. So we do a lot of analysis on gold, silver, us dollar, stock market. Everything is related, right?

Speaker 2: 32:28

You can't just look at gold and silver and think you have the whole picture. So we look at the stock market, we look at the gold to Bitcoin ratio, we look at a lot of individual mining companies that we're investing in here and it really just stems from. You know, from my experience there in the crash of 2008. And then, when I would, I would sit with my father, who's no longer with us on this planet, but I would sit with him in 2008 and 2009 in his living room and connect my laptop to his big screen TV and simply show him what I was seeing on the charts. And I approach it the same way. I try to show people what I'm seeing on the charts. I don't get 100% of things right, but I try to approach it from as unbiased of a perspective as I'm capable.

Speaker 1: 33:17

Everybody. Please make sure you check out iGoldAdvisorcom, make sure you follow Chris on YouTube and X and follow me hopefully as well. I appreciate those that watched and we will see you next time. Thank you, chris, really appreciate it.

Speaker 2: 33:30

Thank you so much, michael, for having me. Cheers everybody.