Something unusual is happening in the world of central banking. As of this week, bond markets are pricing in rate hikes as the most likely next move for nearly every major central bank on the planet. The European Central Bank (the institution that sets interest rates for the 20 countries using the euro) now has an 86% probability of raising rates in June 2026. The US Federal Reserve (America's central bank), the Bank of England, the Bank of Canada, Sweden's Riksbank, and Switzerland's central bank are all in the same position: markets expect them to tighten, not ease.
This came up today across three of our portfolios. The Compass holds gold and the Swiss franc, both of which weaken when interest rates rise. Classical holds bonds, which lose value mechanically when rates go up. Preservation holds a mix of both. All three felt the pressure.
To understand why this matters, think about what an interest rate really is. When a central bank raises rates, it makes borrowing more expensive. Mortgages cost more. Business loans cost more. Government debt costs more to service. The intended effect is to slow down spending and reduce inflation, the general rise in prices across the economy. When one country does this, the effect is mostly local. When every major economy does it simultaneously, the global effect compounds.
The framework for thinking about this comes from the work of Louis-Vincent Gave, whose research firm Gavekal has studied currency and rate cycles for decades. Gave's observation is that synchronized tightening, where every major central bank raises rates at the same time, is historically rare and tends to produce sharper slowdowns than sequential tightening. The reason is that there is no relief valve. When the US raises rates alone, capital flows into dollars and other currencies weaken, giving those countries a competitive boost through cheaper exports. When everyone raises together, that escape hatch closes. Nobody gets the benefit of a weaker currency because all currencies are tightening.
The trigger for this synchronized move is oil. Crude prices have risen roughly 40 to 50 percent from their base over the past year, driven by tensions around the Strait of Hormuz (the narrow waterway through which about 20% of the world's oil passes). Higher oil prices feed into the cost of everything, because energy is an input to manufacturing, transportation, agriculture, and heating. When oil rises, inflation rises. When inflation rises everywhere, every central bank feels compelled to act.
The practical consequence for portfolios is that bonds, which are essentially loans to governments and corporations, lose value when rates rise. A bond that pays 4% per year becomes less attractive when new bonds are being issued at 4.5%. The price of the old bond falls to compensate. This is why our bond-heavy positions (IEF, which holds 7 to 10 year US Treasury bonds) have been the weakest performers across most of our portfolios since launch.
Gold presents a more nuanced picture. In the short term, rising rates make gold less attractive because gold pays no interest, so the "opportunity cost" of holding it increases. But in the longer term, if synchronized rate hikes tip multiple economies into recession simultaneously, gold historically benefits as a safe haven. The question is timing: how long does the tightening cycle last before something breaks?
For our portfolios, this does not trigger any trade today. The Compass already holds gold with the understanding that the current inflationary bust regime favors hard assets over financial assets, even during temporary rate-driven pullbacks. Classical and Preservation are positioned conservatively. But the synchronized tightening signal is the most important macro development we are watching right now, because it directly affects the value of bonds, currencies, and real assets across every portfolio we run.
What would invalidate this view: a sudden collapse in oil prices (below $80 per barrel) would remove the inflationary pressure forcing central banks to act. Alternatively, a sharp economic slowdown in Europe or the US could cause central banks to pause before they actually hike. The June 17 Federal Reserve meeting and the early June ECB meeting are the next concrete decision points.