(Kitco News) - Gold futures dipped to an intraday low of $3,290 an ounce on Thursday, but the yellow metal is still holding near record territory after notching a $3,508 high earlier this month. Despite the modest pullback, veteran market strategist Larry McDonald warns the broader macro signals are flashing red and investors should be raising cash, not chasing rallies.
“This is a vicious countertrend rally,” McDonald said in an interview with Kitco News. “It’s like 2000 to 2001 – mostly short covering and momentum chasers. You’ve got to raise cash into that.” He cited Warren Buffett’s record $348 billion war chest as a major tell that the market’s smartest capital is preparing for stress.
McDonald, founder of the Bear Traps Report and author of How to Listen When Markets Speak, said the U.S. economy is heading toward what he calls a “two-terms, two-recessions” scenario, referencing Donald Trump’s first recession in 2020 and forecasting another one to hit during a possible second term. “GDP already printed negative in Q1,” he said. “Now you’ve got the largest tax hike since the 1960s via tariffs, and the cracks in credit are just beginning.”
One of those cracks is in the $1.8 trillion private credit market, where McDonald sees signs of distress that could snowball. “There’s mark to market, mark to model, and now there’s mark to myth,” he warned. “I’ve talked to multiple institutions who say there’s a 50-60 point gap between where private credit firms are valuing loans and where they’d actually trade.”
New data supports his concern. More than 6.5% of borrowers are now over 60 days delinquent on their car loans – the highest ever recorded, according to Fitch Ratings. Meanwhile, global debt has hit an all-time high of $324 trillion, according to a May report by the Institute of International Finance.
McDonald said that while high-beta trades and AI-linked equities surged earlier this quarter, consumer credit stress and weakening demand are now visible across financials and transports. “Look at Capital One – one of the biggest subprime lenders – hitting all-time highs while other names like Ally and regional banks are diverging badly. That’s not healthy,” he said.
He added that CCC-rated credit spreads – the riskiest slice of junk debt – are widening again. “Triple Cs are the canary in the coal mine. They should be rallying hard if this market had legs,” McDonald said.
As for hard assets, McDonald is rotating into gold miners, platinum, uranium, and emerging-market equities – especially Brazil. “You’ve got central banks buying gold. You’ve got platinum and palladium with more upside than Bitcoin. And Brazil is the breakout trade if the dollar really breaks down.”
Gold’s resilience, McDonald said, is also driven by rising distrust in sovereign credit. “Japan’s 30-year just hit 3.13%. If the BOJ can’t suppress the long end anymore, who can? This is the quiet unraveling of the global carry trade,” he said.
He forecasts that gold could hit $4,000 by next year, with silver and platinum outperforming. “This is the first inning of a hard-asset rotation,” he said. “Barrick could be an S&P 500 top 10 name by 2032.”
To hear Larry McDonald’s full market breakdown, including his views on the Fed, tariffs, AI infrastructure, and whether we’re in the early stages of a default cycle, watch the full Kitco News interview above.