what's wrong with gold
market vibes
March 29…)
A little after 6:30 PM Eastern time on Wednesday, January 16, 1991, the expiration of the UN deadline for Iraq’s withdrawal from Kuwait kicked off the initial bombing campaign of Desert Storm. I went home long 30 lots of gold that night. My wife ran the gold desk at Lehman at the time, and they called her saying Lou Bacon was selling gold in size. Gold was already down $6.00. I called John Hannem at Rouse Woodstock and bailed for an $8.00 loss. Gold opened $20.00 lower on the Comex and settled on the lows, down $41.00.
A little after 7:00 PM on Thursday, March 20, 2003, the decapitation phase of Operation “Iraqi Freedom” began with the “Shock and Awe” bombing of Baghdad. Crude came in $2.00 lower and settled $2.00 lower. That morning was the lowest price for WTI crude futures for the next 5 years, topping out in July 2008 at $147.00 per barrel.
Most investors and traders, risk managers, and even small children use correlations to make binary choices. Silver goes up when gold goes up. Interest rates go up and stocks go down. Mow the lawn and collect your allowance. For years copper was called Dr. Copper because it rose and fell with economic growth, but one day… long ago… it didn’t correlate with economic activity and it never did again.
Over centuries some correlations became foundational. Honesty is the best policy. Men can’t have babies and so forth. When they break…for instance, in the case of Dr. Copper…the universe is sending us a clear message. However, when markets simply diverge, opportunity knocks. On March 1, 2026 the United States went to war in the Middle East again and three foundational correlations collapsed: gold/war, bonds/war and bonds/stocks.
Leading up to the war, gold doubled in fewer than two years on Chinese buying. The Q-4 ETF war-crowd were late to the party. Treasury bonds had never failed to rally in any major U.S. war or financial dysfunction since 1950. But in March 2026, not unlike Q1 1991, safe havens didn’t work. Gold fell 10 percent in a week and 24 percent in 26 days. Silver dropped 19 percent in a single day. Treasury bonds plunged 7 percent and yields rose 27 basis points. The NDX 100 officially entered a correction on Friday, down 10% from its all-time high.
Trillions of dollars of 60/40 AUM are predicated on negatively correlated bonds going up when stocks go down. Broken correlations of the magnitude seen in March 2026 are rare but not unique. Compounding these losses, a lot of investors shifted 5 or 10 percent of their allocations to gold because inflation and geopolitical risks (like a war) were and still are convincing narratives. However, within the first 24 hours of the war in Iran, gold dropped 8%..
CBOT long bonds fell 7 big handles or 5.8%, with yields rising from 4.72% pre-war to 4.98% on Friday.
S&Ps are down 7% for the year. A 50% retrace from the 2025 lows would be another 6.5% or a 13–14% correction. I think that’s doable… probably more if the Strait of Hormuz stays shut… much more, I think.
The question is whether this is a permanent message from the universe or opportunity knocking. Or better said…….is it different this time?
