The U-turn

In the Before Times, travelling the country and lecturing about money, I’d carry a five-ounce hunk of gold in my pocket.

It was a prop, of course. Gold isn’t money, but it’s wrapped in the patina of value.

After waving it around and telling folks there are better places to grow their wealth, I’d pass it around the audience (hoping it would return). Most people have never held a gold bar. It has all the allure of puppy fur.

Well, gold raced higher in the last few months as Trump’s policies trashed the US$ and investors bet the Fed would be lowering interest rates as tariffs roiled, the economy cooled and the president demanded cheaper money.

But that all changed on February 28th.

An ounce of gold has now lost over a thousand US dollars in value. In the last 30 days bullion shed 7.5% of its value and silver is thinner by over 8%. The plunge since the end of January is dramatic – closing in on $1,200. That’s a riveting 20% crash.

Why?

The war, of course. It grows more consequential. Trump said yesterday Iran has 48 hours to open the Strait of Hurmuz (not happening) or he will commit a war crime and bomb all the country’s power plants. That could prompt Iran to knock out desalination facilities in Saudi and UAE, making a big portion of the region uninhabitable within a few weeks and  lead to the displacement of millions. Meanwhile Israel is busy bombing the life out of Lebanon, where a million people are now homeless.

It’s a timebomb.

Trump is moving thousands more troops and assets into the area, raising the odds of a ground invasion – whether to seize Iran’s main oil exporting area (Kharg Island), try to control the shoreline of the Strait (likely impossible) or go deep underground to find the regime’s horde of enriched uranium (insane).

All this mess, the creation of one man, has disrupted the global energy supply and spiked oil. Brent futures topped $112 a barrel on Friday and prices are expected to jump again with futures tonight and trading tomorrow.

So why is gold tanking after the Americans bombed 8,000 targets and are about to escalate? Isn’t the metal supposed to be a safe harbour in a storm?

Nah. Forget that. Myth.

The rocks are shedding value because we’ve been thrust into a period of uncontrolled inflation by the dogs of war. Prices are rising now – or soon to be so – for a vast array of products and services. The US$ is swelling because Mr. Market sees higher interest rates coming as central banks try to fight back against that escalation. Bond yields are jumping as investors demand inflation protection, which is driving debt prices lower. The world was already worried about Ukraine. Now aggressor Russia is richer because of oil revenues. Cuba is on the verge of collapse because of the Trump tanker  embargo. And the Middle East has been set on fire. Energy pricing is in the process of causing a crisis in Japan, SE Asia and, soon, China.

“It clearly means more escalation which means higher oil prices. Some are incorrectly thinking, however, that Iran may cave,” an analyst told Reuters on Saturday “Trump is trying to show he can out-escalate and that way ends in scorched earth for Gulf infrastructure.”

By the way, if the missiles, drones and bombs stopped tomorrow it would not be until September or October that oil prices might return to levels last seen before Secretary of War Pete Hegseth fell to his knees and asked Jesus to watch over the new Crusade. (Actually, it happened.)

Okay, so gold took a hit. That’s not all. Let’s discuss your house.

A few weeks ago there was a lowly, not-gonna-happen, 4% chance the Bank of Canada would raise its key interest rate next month. That has now rocked higher to more than 20%. Where economists universally thought our guys would keep rates on hold all year – maybe lower them a bit in 2026 – things have completely flipped.

In overnight interest rate swaps, traders are putting money on three hikes by the end of the year – adding 75 basis points to the existing 2.25% bank rate. The prime rate at the banks would hit 5.2%, which could kick residential mortgages back close to that level. Yikes.

If you think real estate is bleeding out now with 1.8% inflation and 3.5% home loans, just wait until the first Marine sets foot on Iranian dirt. Our CB boss, Tiff Macklem, has made it clear his bank “will not let energy price effects broaden and become persistent inflation”.

Is there anywhere to hide?

Too late. Stay invested. The storm will pass. It always does. Time to walk the dog.

About the picture: “Drew enjoyed his walk this morning in Nelson BC,” writes Owen, “where finally many days of brutal rain, wind, and power outages turned into sunshine! It is true, all things must pass. Have a great day, Garth!”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2026/03/22/the-u-turn/