“My, my, my… What a mess!”

That was what Tommy Lee Jones’s U.S. Marshal Samuel Gerrard exclaimed when he first saw the train wreck that sprung free Harrison Ford’s Dr. Richard Kimble in the 1993 action blockbuster The Fugitive.

One sympathizes.

Last night, my face was glued to my phone, staring slack-jawed at the carnage investors unleashed on the metals and miners.

As I write this morning, the selling is relentless. Silver is trading below $54. If you asked me if that level was possible as recently as January 30th, I would’ve said, “Not a chance.”

After the negative gamma squeeze in silver this past winter, I vividly remember telling my friend and colleague Enrique Abeyta that silver’s downside target was a soul-crushing $36. He replied confidently, “We won’t get there anytime soon.” I thought he was right then, and I still do. But silver is staring down the barrel of a sub-$50 price, and that's enough to make mining investors reach for the barf bag.

Let me shine a light on two important points from yesterday’s trading session:

First, I said a break below 54.50 in silver looked inevitable and would open a move toward $45. The market barely waited a session to start testing that call.

Second, Treasury yields fell as money ran into bonds for safety. Falling yields usually help gold, because gold pays zero dividends and becomes more attractive when bonds pay less. Instead, gold sold off as yields fell. That’s not normal, amico mio.

Let’s get into it.

Three Forces Imposing Their Collective Power

The first force was oil. Fresh attacks on tankers and energy sites around the Strait of Hormuz sent Brent crude above $115. WTI is just over $100 as I write. Every dollar per barrel is another dollar of inflation the Fed can’t ignore.

The Fed meets next week. Fed Fund futures give a 90% chance of a pause, but December is where the hike hides. $115 crude makes that more likely, not less. Right now, the same market pricing in a rate hold for next week thinks there’s an 80% probability of a December hike. A Fed that may hike again is poison for metals that pay no interest. That force outweighed gold’s role as a war hedge, so gold fell while bonds rallied.

The second force was growth fears. A $115 oil barrel is an implied tax on every factory, truck, and household. Anticipating a slowdown, traders sold the metals you build stuff with. Silver is half money and half industrial input. Platinum and palladium go into catalytic converters. They all tanked.

The third force was the stock market. The Nasdaq dropped 2.6% as investors soured on the financing behind the AI buildout. The S&P 500 lost 1.21%, its worst day since July. When the world's most crowded trade wobbled, funds sold stock to get into cash. And they sell what they can, not what they want.

Put those three together, and you get stagflation. That’s inflation rising while growth slows. Central bankers can’t fix it, because the cure for one half makes the other half worse. Fed Chair Kevin Warsh and his committee are stuck between two bad choices, and the metals market knows it.

Why the Miners Bled More

Gold fell about 3%. Most gold miners fell far more because of operating leverage.

Think of a miner as a business with one product and fixed costs to make it. For example, let’s say it costs $3,300 to pull an ounce out of the ground. That covers diesel for the haul trucks, explosives, mill power, and wages. Those costs don’t move when the gold price moves. The trucks burn the same fuel whether gold is at $5,000 or $4,000.

The miner’s profit is the gap between the metal price and that cost.

At $4,500 per ounce, the gap is $1,200.

At $4,000 per ounce, the gap is $700 an ounce.

Gold fell 11%. The miner’s profit fell 42%. That’s operating leverage. A small move in the output price becomes a large move in profit because costs don’t budge.

Let’s now add the second problem, the one I wrote about yesterday.

Diesel comes from oil, and oil just went to $115. Explosives come from natural gas and ammonia, which track oil. So the miner’s cost doesn’t sit still at $3,300. It climbs to $3,500.

At $4,000 gold and $3,500 costs, the gap is $500 an ounce.

Gold fell 11%. Costs rose 6%. Profit fell not by 17%, but by a whopping 58%.

That’s what happened to the miners yesterday. The metal price fell from the top. Energy costs rose from the bottom. The margin between them got squeezed from both sides.

Mining stocks are claims on that margin, not on the metal.

That’s why miners run so far in a bull market and bleed so badly in a bear. They’re a leveraged bet on the gap, and the gap moves faster than the price.

Wrap Up

I’m keeping an eye on these things:

Oil. If Brent breaks back under $100, mining costs ease, and the miners get relief before the metal does. If Brent holds above $115, the squeeze continues. My charts suggest a squeeze all the way up to $171 is far more likely.

The Fed. The FOMC meeting is Wednesday, and September PCE inflation follows on Thursday. A pause plus soft inflation data takes the December hike off the table and gives gold its first real tailwind since summer. I wouldn’t bet on it. As of right now, a December hike is happening.

The metals themselves. Gold must hold around $3,945 to $3,970. If not, we head to $3,760, and all bets are off. Silver needs to hold $44 to $46. Until then, we don’t fight downtrends.

I told you yesterday that I’m sitting in cash, waiting for the fat pitch. The market just moved closer. In all likelihood, it’ll move it closer still. The miners are now priced for $4,000 gold and $115 oil. Both of those may change by Christmas.

Truthfully, I’d really like to see a prolonged consolidation period before the next uptrend. Then the uptrend will be more believable when we see it.

Remember: This, too, shall pass.