Taking Stock on Resource War

The week ended on January 30, 2026, interesting news items to look at from the  week are:

1. Taking Stock on Resource War: On Friday, there was a major correction in the financial markets in equities, bonds, FX and precious metals. The incident is a symptom of a classic liquidity flush. I like to devote this week’s Blog to examine at what had happened and what my humble expectation is of what will follow. But first let’s take a look at a summary of performance of various asset class in the week ended January 30, 2026. (Fig. 1)

West Texas Oil (+7.54%); Brent Oil (+6.82%); Hang Seng Index (+2.69%); AUD (+1.11%); JPY (_0.72%); Copper (+0.57%); Euro (+0.34%); Rmb (+0.17%); S&P 500 (+0.21%); Uranium (-0.22%); NASDAQ (-0.37%); USD Index (-0.46%), Russian Rubble (-0.67%); Gold (-1.78%); Bitcoin (-6.78%) and Silver (-16.28%).

(i) Oil - The heightened tension for US for a regime change in Iran has caused oil prices to spike. There is a distinct possibility that on any attack by US, Iran will block access through the Strait of Hormuz and thereby plunging US and her allies into economic chaos. Approximately 30% of global oil trade passes through the Strait of Hormuz and is the world’s most important energy choke point. (Fig. 2).

Control of energy origin and energy transit choke points has been the most important US Hegemonic and Foreign Policy since the end of the Bretton Woods Agreement in 1971. Wars have been waged, regimes toppled but after decades and numerous attempts US is still not in total control of oil and gas flow because of Russia, Iran and opposing Islamic states near critical choke points. (Fig. 3).  

Why the focus of US on oil transit choke points and Russia and Iran in particular, just simply take a look at the Global Oil Balance in (Fig, 4).

Although US is self sufficient, Europe and Asia is significantly deficient and requires huge imports from Russia and the Middle East. Squeezing Russia and Iran means an effective choke hold on the lifeblood of Europe and Asia. All the scheming and maneuvering is not for US national security but global dominance. It is sad European politicians have willingly surrendered their national interests in terms of natural gas by their acquiesce on the blowing of the Nord Stream gas pipes and substitute with the outrageously priced LPG from US. (Fig. 5)

   

But let us take stock on a possible US attack on Iran to facilitate a regime change. My humble opinion is the livelihood of an attack is of a very low probability because: (a) CIA has poured out all its assets for a regime change in Iran and failed. By identifying and hunting down 40,000 Starlink terminals and their operators, Iran has basically disabled most of CIA and Mossad assets embedded in Iran. (Fig. 6)

The classic CIA playbook I discussed in my last week Blog is now a spent force. (b) I presume if the US political elites has not learn her lessons from the War on Terror, Pentagon certainly has.  After spending $8 trillion on the War of Terror and Arab Spring, US ledgers are seriously in the red from adventures in Afghanistan, Iraq and Syria. The combined land mass and population of the foregoing 3 countries is 1.27 mil sq km with a combined population 118 million  as compared with Iran’s 1.65 mil sq km and 93 million. A US concentration of 50,000 troops for an Iranian attack have zero hope to control the country. Even Operation Prosperity Guardian requires two US Carrier Strike Groups but could not prevail against the Houthis. For the time being only the Abraham Lincoln Strike Group is streaming to the Arabian Seas. (c ) All of the Gulf States and Turkiye have barred their airport and air space to launch an attack on Iran as who wants the entire region be destabilized with potential flood of refugees in the hundred million mark. Without staging platforms, the logistics for a war of attrition is not something even the US could manage (d) Iran is a key member of BRICS and Shanghai Co-operative Organization. Russia does not want its underbelly South to fall and China does not want its key OBOR artery to be severed. China and Russia are already assisting Iran with their defense and possibly Russia will be forced to assist in counter attacks if situation gets desperate enough and (e ) Washington out of funds and Government shut down from January 30 midnight. (Fig. 7)

So,  my take all the US posturing and pressures is Trump’s desire to get a deal from Iran. A deal for Iran to forsake its nuclear and missile programs.  A kinetic war on the other hand would not achieve US political objectives. Nonetheless, all the sabre-rattling is doing serious damage to the financial markets.

(ii) JGB (Japanese Government Bond) Melt Down - For 30 years since Robert Reuben initiated the strong dollar policy (1995) US has forced Japan to provide liquidity to the entire Western alliance based upon the Yen Carry Trade. This long cycle has finally seen its use by date and the marginal effect of JCB buying all the JGB is now simply add fuel to the fire of inflation. With plans of revitalizing Japan’s economy through fiscal deficit re-militarization, Japan Bond vigilantes are voting with their feet to flee the JGB market. From the end of QE, ZIRP and NIRP in 2023, the 40 Years JGB has seen interest rates rose from 0.75% to 3.94%. This translate to a fall in bond prices of 65%. As JGB is the bedrock asset for banking, pension and the insurance industries, this is catastrophic both for Japan and the global financial markets. Poor old Japan is having a double jeopardy as the as Japan has $2.9 trillion of US Equities and Debt Securities plus 40% of Japanese bank loan exposure is to overseas borrowers principally in USD (another $1 trillion), the days of Japan as the main global liquidity provider is finished. (Fig. 8).

To some extent, the liquidity flush we witnessed this weekend was in part due to problems associated with Japan.

(iii) Euro Dollar Volatility: A Eurodollar is a U.S. dollar-denominated deposit held in a bank or branch outside the United States. Despite the name, they are not limited to Europe and can be held in financial institutions anywhere in the world, such as in Tokyo, Singapore, or the Cayman Islands. Euro dollar came about because of US Current Account deficits due to trade and US overseas spending (mainly military). With the help of AI, allowing me to graphically present the extent of US deficit problem in (Fig. 9). Before the default of Bretton Woods and during the early years of default, US runs a very small current account deficit because a country’s deficit has to be settled by gold. I have mentioned previously in my Blog that the tacit used by US to maintain its Reserve Currency status was (a) Petroleum and commodities are to be settled exclusively in USD, (b) higher interest rate than other developed economies as inducement for holders of USD and (c ) trade deficit to push dollar into the hands of exporters to US as incentive. The cumulative total of US Current Account deficit from 1971 to 2024 was a staggering $18.4 trillion. Since the associated debt was never paid, the interest accumulated on the Current Account deficit I would estimate to be about $9.1 trillion if I simply use the 10 Year US Treasury Note interest rate as a guide.  Hence the total cost of the Dollar Hegemony for all these 45 years is $27.5 trillion. When I crossed reference to total assets held by Foreigners in US in a comparable period, the total asset value came to $31.6 trillion and so my estimate does appear reasonable.

The big question is with US already running a Current Account deficit of over $1 trillion in the year 2024, there is no country on earth capable of financing US’s appetite except a country with a trade surplus of $1 trillion. That country is China. Would China finance US spending whilst being encircled and sanctioned as an enemy? What do you think? So US by necessity has to turn and cannibalize its friends and allies - the Ukraine proxy war against NATO allies, the reciprocating tariffs against the world and now specifically Canada, Denmark and EU. Where would these country turn to elicit help and support against the apex predator - yes, you know the answer already - China.

So despite this Friday’s take down of precious metals, as ferocious as it was,  the whole saga was just a speed bump and will not altered the course of the global de-dollarization drive.

(iv) Precious Metals Takedown - I hope the above paragraphs have explained the rise in gold price which is by and large explained by Central Bank buying and debasement fear of USD by investors. The rise in silver and the sharp fall on Friday is another story altogether. But first I will recast Fig. 1 which captures the event for the past week but extend the period of review to one month as (Fig. 10).

The performance of the various asset class are as follows:  

Uranium (+36.95%); Silver (+16.36%); Brent Oil (+14.63%); West Texas Oil (+14.45%);  Gold (+13.54%); Hang Seng Index (+4.65%); Copper (+4.35%); AUD (+4.35%); Russian Rubble (+4.10%); JPY (+1.30%); Euro (+0.94%); NASDAQ (+0.76%); S&P 500 (+0.71%); Rmb (+0.60%); USD Index (-1.19%) and Bitcoin (-3.74%).

The picture certainly look very different to a narrow focus of just what happened on Friday. Allow me to draw your attention to Silver which has gone up in price within the month of January by as much as 66.5% before a sharp reversal to settle at a 16.36% increase for the month. Gold similarly has gone up 28.88% before settling down to 13.54% increment.

I will now provide some data points and a timeline as to Friday’s events to facilitate an understanding 0f the significance of the ongoing resource war.

(a)  Global Available Silver Stockpile is depleted - The annual Supply and Demand Survey by the Silver Institute indicates that global silver demand particularly industrial demand since 2021 has been running ahead of Mine Production consistently.  The outcome is obvious, silver stockpile of approximately 600 million ounces has been totally depleted by Q3 of 2025. (Fig. 11).  

But why the volatile price movement? The answer is complicated and one must take a deep dive into the supply and demand characteristics as well as the divergence of the western financial economy and physical economy.

(b) Silver Demand - Fig. 12 gives a breakdown of silver industrial demand which is approximately 80% of total demand.

The Pie Chart indicates various industrial uses of silver. Silver with the highest form of electric conductivity and heat dissipation is a must have in thousands of electronics, electrical and high stress and heat processes. The fact that a few hundred dollars of silver is a key to systems that worth hundreds of thousands to hundreds of millions mean demand for silver is by and large inelastic. The fastest growing segment is photovoltiacs, the new green energy is mandatory for most developed countries. There is no substitute for silver in the fabrication of semiconductors and dependable high speed communication connections. Critical components in automobile, medical, military and aerospace must be silver brazed and soldered. So manufacturers would just pay whatever the market demand to secure uninterrupted supplies. Whilst high prices would dampen demand for jewellery and silverware to a certain degree, yet high prices would fire up demand for investment grade silver in coins and bars. Since 2023, Chinese silver industrial consumers has been quick on their feet to by pass Western intermediaries like LBMA and Comex to source silver concentrates and dore bars from South American silver mines and refiners and pay a premium to the spot market price to secure supplies. Hence the continuous premium of silver prices in Shanghai over their counter parts in London and New York reflecting a true price discovery for physical silver over paper contracts.

(c) Silver Supply - Fig. 13 provides data for the global top 10 silver producers with a predominate concentration in Latin America. (57%).

Silver comes from mines that produce a poly-metallic ore. In fact 70% of silver produced is a by product of mines that primarily produce gold, copper, zinc and lead. The silver content is typically 200 to 400 grams per ton of minerals mined. As a result, silver production is by and large price inelastic because silver is less than 1 percentage by tonnage of the primary minerals mined.

(d) Fractional Reserve Bank - The predominant price in-elasticity of silver both in terms of mine supply and industrial demand would mean silver price is inherently volatile and become explosive once a shortage is developed and made known. Yet between 2021 and 2024 with known deficit in supply and a looming severe shortage, the price of silver remained static (Fig. 14).

The sad answer to this tragedy lies with the pricing of gold and silver is contrived and reflect monetary metals has been played not in accordance with natural laws of supply and demand but a sick fractional reserve banking system. For decades, customers entrust their gold and silver investments with banks who pocket their payments with actually purchase and store their metals. In fractional reserve banking, banks enlarge customer deposit by a factor of 10 by creating loans and recycle the enlarged pool of “money” through interbank funding. They treat gold and silver deposit in like manners and so long there is a metal pool somewhere available to meet rare withdrawals, banks happily pocket the customer purchased money and earn a free use of the funds. At best banks put down a 5% margin deposit against a derivative contract to protect the metal price movements. Whenever metal price moves against the banks, banks usually orchestrate a massive dump of paper contracts for metals they never possess and collapse the price. It is a known fact JP Morgan in 2020 was fined $920 million for such manipulations. (Fig. 15).  Can you imagine how much profit was involved over a 30 year period.

It was only in Q3 2025 that JP Morgan flipped from a perma silver short to a net long position because the lure of easy money was irresistible until the house was literally on fire. Other big US banks followed but as at this stage big European banks are still net short of approximately 4,000 tons according to the latest Comex report.

(e ) Friday sharp reversal of Precious Metals - For late comer FOMO investors, Friday takedown of silver prices was a blood bath because the intraday price drop was 37%. A FOMO (Fear Of Missing Out) investor is an individual who makes impulsive, emotional, and often risky investment decisions based on the fear of missing out on potential gains that others are experiencing. Driven by herd mentality and social media hype, they often buy into overvalued assets, such as popular stocks or cryptocurrencies, hoping to make quick profits, which often leads to buying at market highs and selling at lows. For industrial silver consumers and long term value investors, Friday was just an event to clear some froth on silver price without any relieve of the continue silver supply shortage. I like to comfort investors who invested in physical silver recently that they may have bought a relatively pricey batch but they will not be proved wrong in the days to come. For FOMO investors who went on leverage, I hope they are not hurt too deeply and learn from this incident.

For what is worth, allow me to present the following timeline and event markers:

(a) Early institutional movers began to take profit in the second week of January 2026 - silver price from $76/oz onwards

(b) Shanghai Gold Exchange and Comex increase margin deposit to encourage excessive speculation - December and January.

(c) Jan 13th: Comex shifted from fixed-dollar margin to percentage based margin and significantly increase cash requirement to trade futures.

(d) Jan 27th: CME had increased the maintenance margin percentage twice this week to ensure "adequate collateral coverage" amid extreme volatility. 

(e) Jan 30, the Shenzhen Stock Exchange implemented an emergency full-day trading halt for the SDIC Silver LOF. 

(f) Jan 30 morning Asian hours, Tokyo silver prices experienced wave of liquidation arising from the JGB Bond rout.

(g) Jan 30, London opened and price decline accelerates, falling prices triggered margin calls with a cascading effect on stop loss and more selling.

(h) Jan 30 New York opened and a blood bath on over leveraged positions.

(i) Jan 30 11:59 pm, US Government shut down.

In summary, the latest Comex report shows from December 2, 2025 to January 27, 2026. Institutional investors have reduced their long position by 58% (net long balance remaining 1,365 tons), banks have reduced their net short by 21% (net short balance 4,050 tons), Producers have reduced their forward sales by 18% (net short balance 3,761 tons) but retail investors had only sold down sparingly and reduced their long position by only 15% (net long balance 2,837 tons).

It so happens that the takedown of Precious Metals coincide with a US Government shut down and from this point onward, a majority of traders and investors will have to operate in the dark without statistical guidance. Whether it is greed or fear that will take hold of your thinking is not for me to know. As for my own account, I prefer anything that comes from the earth over artificial construct by men without conscience and integrity. May you find peace in the decisions that you are going to make.

Colossians 3:15  And let the peace of God rule in your hearts, to which also you were called in one body; and be thankful. 16  Let the word of Christ dwell in you richly in all wisdom, teaching and admonishing one another in psalms and hymns and spiritual songs, singing with grace in your hearts to the Lord.