Post-FOMC, a ‘Goldilocks market’ is developing and an unbiased view is called for
Markets were apparently surprised by the hawkishness of the maiden voyage of the Warsh FOMC. Pre-FOMC we noted the following (per NFTRH 919 on June 14th):
Warsh was even firmer than anticipated. But the net result is the same. The new Fed head indicates he is serious about inflation, and with the public’s inflation expectations recently ramping that is not a surprise. CME Group was surprised as usual, but immediately got busy pulling in its rate hike expectations after FOMC.
When the Macro Changes… We Change
The main focus now is the “Goldilocks” state of the 10yr-2yr yield curve with short rates spiking relative to long rates, dropping the curve out of its post-steepening consolidation and into a flattening posture.
This is not only not bullish for gold. It is outright antagonistic. As in post-2011 antagonistic. This breakdown in the yield curve steepener into a flattening posture, if it continues, indicates policymakers in full control, with the intention of whipping inflation. For now.
I don’t expect this flattener to last anywhere near as long as the post-2011 Goldilocks phase did. But as long as it is in effect, a negative macro signal is in play for gold and potentially much of the commodity complex that travels in its wake.
Reference TA on the HUI Gold Bugs Index, which was published in pre-market on June 17th, prior to the FOMC release. In it we defined what would be needed to break the gold stock correction and what corrective activity may still be ahead.
There was plenty of time for investors/traders of gold stocks to make whatever adjustments they saw fit. For my part, I took a few profits and re-hedged. But have also been advising NFTRH subscriber for all of 2026 that gold stocks are no longer unique (as in 2025). Well, now they are not only not unique, they are dealing with an adversarial macro (and the financial brains heading Treasury and the Fed).
Technically, nothing has materially changed since the HUI post linked above, including the prospect of the gold stock bounce/rally rolling over and grinding on. On the big picture, risk/reward is obviously much better now than it was in January. But risk was ‘nosebleed’ in January.
In the here and now, just as the bearish gold stock ‘sector fundamental’, the Gold/Oil ratio, looks to bottom and turn up…
…the yield curve now introduces a bearish ‘macro fundamental’ for the precious metals complex. It may last a month or it may drag on longer. But dear gold bugs be warned, this new Fed chief means business, and I have all along had the feeling that Bessent, over at Treasury, means business as well.
The mid-terms are upcoming and wouldn’t these two well heeled financialists like to have a pleasant inflation backdrop for daddy Donald to tout at such time? Yes, they would. They mean business, alright.
In this context, “business” can be interpreted as getting the macro painted in a way that gold will not act as a monetary warning system. We must factor a hawk-leaning Fed, for a while at least.
I have not had this feeling about the policy-shaped macro since Bernanke’s stroke of evil genius, 2011’s Operation Twist, which literally rigged inflation out of the macro picture and slammed the yield curve into what would become a 12 year flattening phase amid the image of a strong economy. “Image”, interesting word. Bernanke’s stated goal back then was to “sanitize” inflation signals.
The Fed’s main trick is policy that eventually drives inflation. But I believe that Warsh is an intelligent man and I also believe he may be tied at the hip to Bessent. These are financial guys and they know what they are doing. Let’s call them the sons of Bernanke (SoB).
The SoB’s will disinfect the inflationary macro, and the perceived effects could persist. But as always, it will ultimately fail and the main theme of an inflationary macro will reassert, perhaps sometime in 2027.
Very likely (in my opinion), they have asked Trump to keep his mouth shut about interest rates (unlike his constant badgering of Powell) while they – the financial guys – engineer short-term expectations and set a nice sanitary stage for future inflationary actions.
Where inflationary policy is concerned, you have to invite the Fed into your house. The last time this happened, during the COVID crisis, they begged the Fed to enter da house. And boy did it ever, amid an intense deflationary episode.
So much so that the after-effects of that inflationary operation blew out the macro into a new age of inflationary market signaling. That is probably the #1 reason I don’t expect this Goldilocks phase to be anywhere near what the post-2011 phase was. The age of disinflationary bond market permissiveness ended in 2020, as confirmed in 2022.
Within this post-2020 inflationary macro we have been expecting an interim disinflationary phase. This could come in the form of a brutal liquidity crisis or a happy Goldilocks phase. Goldilocks depends on disinflationary macro signaling. “Just right” as they say, with respect to its coolness.
I do believe Goldilocks will win out over deflation scare in the short-term. If a deflation scare were imminently in the offing, the yield curve above would be steepening, not flattening. However, when the Goldilocks phase ends and the curve re-starts steepening, it is possible that the steepener could resume amid a backdrop where disinflation devolves into a deflation scare prior to the next overt inflationary phase.
Lot of ifs and coulds. But the main point is, enjoy Goldilocks while she’s here because as abruptly as she appeared last week, she could also be gone. Let’s keep in mind that yield curves steepen under deflationary or inflationary pressure. Post-Goldilocks, one of those conditions will ensue.
Strategy
I am a gold bug. However, thus far in 2026 being an active gold bug is not a preferred way to go. What’s more, recent macro developments indicate that at best, a continued view of gold stocks as “just another sector” is the way to go. I have a few positions, guarded by the hedges, and NFTRH subscribers have been well advised in advance about the status of the precious metals.
The Semiconductor sector would normally be a good one in a Goldilocks phase, but investing there is investing in bubble dynamics. After originally holding several more Semi items (MRVL, QCOM, SYNA, etc.) I still hold ASML, NVDA and ALAB, but certainly with the knowledge that it’s all over done. Interestingly, it is overdone to the degree that the precious metals complex was in January. What one thing (SOX, right) looks like how another thing (Gold, left) looked in January of this year? Exactly.
So for this phase as the stock market fans out to include more stocks amid better breadth, it’s a stock pickers’ market. And that is exactly what I have been doing, with no gold bug bias whatsoever. For just one example (of a potential many), the Software sector took a big hit on AI fears.
For some stocks, those fears are well founded. But a market with broader breadth is a market with broader opportunity. I have picked several software items that are thought not to be vulnerable to, and in some cases benefit by, AI’s progress.
The bottom line is that bias must be left aside in this developing phase. You play the market you’ve got, not the one you wish for. In 2025 gold bugs could not have wished for a better market. 2026 has been different, as fully anticipated. Now, with a new yield curve signal in play, that remains the case. A gold stock ‘sector’ fundamental (Gold/Oil) is due for repairs while a precious metals ‘macro’ fundamental (Goldilocks, yield curve flattening) is only now cracking negative.
It’s a picker’s market, and it’s especially an unbiased picker’s market. The only thing that matters is proper interpretation of the top-down macro in which markets and their sectors exist. You can’t fight City Hall, and you can’t fight the SoB’s either. Their daddy, Bernanke, taught us that a decade and a half ago.
This article is written in part to get the macro view largely nailed down so we can focus more on sectors and stocks in this weekend’s upcoming NFTRH 920. Like, have a little fun along the way while being on the right side of a super interesting macro backdrop and its cycling phases.
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