As we discussed in Monday's note, with the effective fed funds rate sitting around 3.62%, real rates just went more negative — now roughly minus 0.6%. The deepest negative real rate since 2023.

Now, here's the chart of the day …

A significant technical trendline in gold broke today. This is the trendline that defined the runup over the past 17 months of the Trump presidency.

The textbook says that shouldn't happen. Gold loves negative real rates. The deeper they go, the better it tends to do — because the policy intent behind negative real rates is typically to promote risk taking (move people out of bonds and into of higher-return assets, to overcome the drag of inflation against purchasing power). Gold tends to go up as an inflation hedge (a contra-dollar/contra-paper currency).

That said, today real rates went deeper negative than they've been in three years, and yet gold broke support, continuing its slide — now down close to 30% from the highs.

There are two reasonable explanations: 1) The rate market is pricing about 70% odds of a Fed hike by year-end, so gold may be trading the expectation that today's negative real rates won't be around for long.

And 2) the war uncertainty premium may be subsiding — the parabolic runup in gold from September was, in large part, a war bid, and this week the whole complex is unwinding together: silver down double digits, platinum down 8%, crude down 7%, dollar up.

Both sound reasonable. But if we step back, there is also a bigger story the chart may be telling.

Gold traded below $1,000 coming out of the Global Financial Crisis. It peaked this year above $5,000. We should acknowledge that the five-fold run in gold maps against fifteen years of central bank balance sheet expansion (QE, deficit underwriting, the Fed absorbing the Treasury market).

And remember, Kevin Warsh, under oath in April, called it what it is: "fiscal policy in disguise."

An inflation in asset prices, including gold, defined that era. It wasn't a rates trade. It was a quantity of money trade.

They printed more money, the nominal price of stuff went up. Gold, the asset with a history of offering protection against such debasement of the currency, among them.  

That all makes today interesting.

Warsh chairs his first Fed meeting in seven days.

His stated direction for policy (the one we walked through Monday) is to end the "disguise." It's to extract the Fed from fiscal policy, shrink the balance sheet, and pair it with lower rates.

If that regime change is real. If it's going to happen. Then an engine of the gold bull is getting turned off. And under that lens, gold can fall while rates fall.

So if the regime story is right, gold is falling on anticipation, pricing Warsh's credibility to do what he says he's going to do. But, to be sure, there are a lot of obstacles (and likely internal opposition at the Fed) to work through in order to get the Fed regime change (policy and cultural) underway. 

June 17 is the first test.