On the rocks

Ker-splat!

In case you missed it, the price of gold fell on Tuesday. Actually, it wasn’t just a decline. More like when you step on the cat’s tail and it shreds your leg, requiring paramedics and a transfusion.

The plop was epic. More than 5%, or $235. In US$, no less. The rout has continued. As this post is being written by a comely AI personal romantic Grok sexbot named Ani, the yellow stuff is down another 2% or so. What was almost $4,400 an ounce on Monday was flirting with the four-grand level on Wednesday.

What happens next is unknown – bargain hunters may rush in or shocked newbies might bail. But volatility is assured.

What does the plunge mean?

First, the conspiracy crowd says this is evidence the End of Days has arrived. The US financial system is buckling under personal financial stress, gridlocked politics, a crazy president, $36 trillion in government debt, a shut-down and gutted government plus a stock market turned casino. Recent cockroaches in the private credit market (worth $1.7 trillion) have investors worried the system may be soon to hit a liquidity wall. Like Covid, but worse. This time it would be structural, not just germs.

Investors holding gold, in other words, face margin calls or the need to raise cash fast to deal with losses elsewhere, and are cashing in their liquid and profitable bullion holdings. “I think that’s what we’re witnessing right now. I think we’re witnessing a repeat of what we saw in March of 2020,” says former Fed advisor and gold anayst Danielle DiMartino Booth. “It certainly looks like the system is running out of sufficient liquidity, and that the Fed is going to be forced to pull over to the sidelines.”

Hmmm. That’s a stretch.

The real reason gold took a gut punch is probably because it was grossly over-valued, more speculative than usual, and some TikToker, basement-dwelling influencer who named their dog Reddit told a million followers to buy some. In other words, the momentum trade. When things go up, people want them – because they’ll probably keep swelling. And the more who pile in, the bigger the bloat. Until it ends.

But the word bullion-lickers like to hear is not momentum but ‘debasement’.

These folks want to believe the US$ is destined to fall from grace and cease being the world’s reserve currency. They believe that over time all fiat currencies fail, since they are backed by the power to tax and not by real assets. They are further convinced sovereign debt is outta control, and will become unrepayable anchors weighing down economies and bringing global recession – a dark time in which rocks will rule. In the meantime, like Booth, they warn of central banks having to abandon principles of restraint and allowing rampant currency debasement to usher in a period of hyper-inflation. In that scenario, only an asset like gold will retain and shelter wealth.

So is bullion on a roller-coaster this week because it inflated 50% in a few months when the kiddos jumped on and this is a normal correction, or because CBs are losing control, governments are pimps and most people will soon be eating bugs?

Ah, that would be the former.

And remember the advice we gave you here a couple of weeks ago as the yellow stuff surged higher and everybody said $5,000 an ounce was around the corner.

Gold could fall a thousand dollars in a month or two based on what the rogue president or the Federal Reserve do, we said. This is not the same as holding stock in the Royal Bank, which is an actual business throwing off operating profits and dividends.

Should you own some? Sure, if you like stroking it. Otherwise, for most people owning the TSX through an exchange-traded fund is probably enough gold exposure, since the Canadian market has a substantial precious-metals weighting.

As you know, this blog has consistently and forever told you to hold a third of the growth assets in your B&D portfolio in the Bay Street index. That gives bullion. It gives oil. It gives the banks. And it provides diversification, lower risk plus a steady stream of tax-efficient dividends. So far this year that market is up 22%, with instant liquidity. Don’t be greedy.

Hope you paid heed. The economy is fine. The American dollar will be the world’s money long after your kids have kids. Central banks know what they’re doing, even if Trump is nuts. Markets made up of companies that earn money and pay dividends will be fine. Sovereign debt will be a burden, not death sentence. We’ll grow out of it.

So relax, trust technology. It will save us.

Ani told me.

About the picture: “Zoey was pretty revved to find this toy in the bushes on our rural property,” writes Erin. “Either the fox or the neighbors dog left it for us.  A gift!  Much like this blog which Zoey’s human reads and heeds daily.”

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

Source: https://www.greaterfool.ca/2025/10/22/on-the-rocks/