The FED'S Fatal Mistake Why Gold is About to Explode Higher

Gold is sounding the alarm that the Fed is about to make a massive policy error that will push the economy right off a cliff and send gold prices into the stratosphere. And I've got all the charts to prove it. We're going to look at why the two-tens yield curve has signaled every gold rally in the past and it's about to signal another one. How ETF holdings show gold is still massively undervalued and under-owned. Wind seasonality is about to kick in and it's coming fast. And here's the big one. Why fund managers are about to start buying and you're definitely going to want to front run them after you see this chart. Now let's dive into the bullish case. We're going to look at the Fed's fatal mistake and then that one black swan event that could flip this entire thesis right on its head. Let's start out with seasonality and this chart is looking at gold shares of GLD over the last 20 years. And I want you to see at the start of the year what happens. Gold tends to rally. It gets in right around April. May starts to consolidate. There's a pullback into the end of June. So we're talking like 10 days away from this thing flipping and going into a strong rally into the second half of the year. So we're almost there seasonally. But let's take a look at what's actually happened this year so far. And what we can note is right around January and February. We saw that consolidation, the peak start to come in. So it started a bit early, but we're seeing the same pullback right into the end of June. So if history is engaged here, what we're setting up for is a monster second half rally. It's going to be supported by some big buyers. Because a recent World Gold Council survey supports the view. A record 45% of the 76 central banks surveyed between February and May expect to increase their own gold reserves over the next 12 months. But it doesn't stop there. Right now, there's very low speculative positioning, in fact, relative to its historical average. And when you see those kind of setups, you get some really big squeezes. Let's take a look. Because of gold net long managed money on COMEX, well, you can see it continues to decline. And that means the big professional traders, they're not interested in gold. But if you go back in history, you can see some cases are big buyers of gold, you know, pandemic crisis. And what we're seeing in the 210 yield curve right now is so interesting. That's exactly what is coming. And how about implied fear? Because fear took over gold during the latest move lower. In fact, the GLD three month put call skew is at multi-year extremes. Let's take a look. And you can see it just skyrocketed here. So what you're looking at is the put to call skew. So what happened in 2026 is we saw gold peak and start to come down. And instead of buying the dip, which is typically what a lot of people do, they actually packed and they believe that gold is going to go down. So what they did is they bought a ton of puts. Now this has happened once before. Let's go back and look, because it happened right around 2017. Let's take a look at the chart. Because in 2017, this is exactly what happened. Gold started to drop, everyone bought into that believing. So the heads to the downside, and then all of a sudden those puts got squeezed higher. So we're setting up not just for seasonality to go higher, not just for central banks to be buying, but this put skew is going to get flushed out. And this is all at a time when we see that gold is under-owned and undervalued relative to where it should be. Because there is something called a federal funds rate implied level, and you can see the typically actual ETF holdings fall right alongside that. Today, you can see this pullback in gold, it's gone too far, because based on the rate implied holdings and forecast, this should be a whole lot higher. But what about machine positioning? You might remember, it wasn't long ago I told you that Bank of America's CTAs were going to sell. And they did, they hit their trigger level. Today, well they're not looking to sell anymore. Let's take a look, because you can see right here these two dashes, well that means there are no sell signals in sight. The next buy, put this in your notes, 45.01. So we've got a ways up to go, and I'm going to give you exactly all the levels that I'm looking at later in the show. But there's one thing that's really interesting here about this bullish setup, and it's what fund managers are doing. But before we get into that fund manager chart, I want to introduce you to our sponsor for today's show, Real Asset Acquisition. You can find them on the nasdaq in the symbol RAAQ. And they're the company bringing IQM quantum computers public. This is going to be the most undervalued quantum stock on the market with more systems shipped, better performance, and at a fraction of the valuation of its peers. This is one you're not going to want to miss out on. Now I sure appreciate if you take a moment to support our sponsor, click that Yahoo Finance link in the pinned comment or description below. Stay tuned to the end of the show for more information. Because I'm going to show you, when they started to buy, they kicked off both of the last two big rallies. Let's take a look. Because right now, the net percentage of fund managers saying that gold is overvalued just plunged to its lowest since February of 2024. Now let's go back to 2021 through 2023. You can see here that fund managers were thinking that gold was undervalued here. So let's take a look at a chart. That's exactly what happened right here. This whole period they were saying, yes, we agree it's undervalued and they were buying gold and look what happened. It took off in a big way. Let's look at the other period between 2017 and say late 2019. You see the same setup and what happened? Gold consolidated and then it took off in a big way. So right now, fund managers are saying in a big way that they think there's an opportunity in gold. And when they start to buy, you want to be ahead of them in a big way. But let's talk about this two tens curve because there's a big policy mistake going on by the Fed right now. And this chart is the one that calls every single gold rally. So let's dive in and I'm going to explain. If you've never heard of the two tens curve, I'm going to explain exactly what you're seeing here. But what I want you to know is let's take a look at both of those times when fund managers said that they thought gold was undervalued. What happened? The two tens curve was declining and when it fell below this horizontal black line, it was actually inverted. And going into the pandemic, it was headed down the same path. And look what we're facing right now. The two tens curve is rolled over and what this is suggesting is just exactly what seasonality is trying to point out. That we're about to see a monster rally. So what is the two tens curve and how do we know it's indicating a policy mistake? Well, let's look. Because what it's suggesting is that two year yields are starting to rise here. And this is important to understand because the market dictates what the Fed does. This is exactly what Kevin Walsh was saying. He wants to set policy based on what the biggest market makers are telling him. And right now they're saying, we bought into your narrative. We believe you're going to hike rates and we believe that you're going to do that in response to inflation. So as we look at the two tens curve, we see it start to roll over. That's an indication that two year yields are going higher. And the validation is while the Federal Reserve opted to keep rates unchanged, policy makers signal growing support for hikes this year. At the same time, the new Fed chairman, Kevin Walsh, vowed to restore price stability. And again, the market said, you're going to raise rates. And since two year yields are correlated with the funds rate, what happened is two year yields are rising. But at the same time, on the tens side of the curve, what's happening? Well, it's going nowhere. In fact, we can look at ten year yields going all the way back to, say, mid 2022. And we can see they haven't materially moved in either direction. They've gone largely sideways. So what we're seeing in the chart here is very clearly what's happening. Our two year yields are rising faster than ten year. Now, I want you to understand the importance of this. Because when you see an inversion, let's take a look at the chart here. Every time you see the two tens curve fall underneath that horizontal black line, what usually follows? A recession. You see that in the 80. You see that in 81. You see it here around 91. You see it go in the dot com bubble, the financial crisis, the pandemic. You saw the big market correction in 2022. And now we're starting to see the initial signs of that happen again. And what I want you to understand is the importance of it. Because what is it trying to tell you? It's telling you that financial conditions are going to tighten up in a major way. But first, let's take a look at what Goldman Sachs is saying. Because I think their call is a little off here. Because if the Fed were to hike demand for gold as a macro policy hedge, it could unwind more persistently with prices at $4,400 by year end. So that's the call here. Everyone believes the Fed's going to hike. If that happens, the next thing you know, gold is going to go down. But what if that's not what actually happens? What if the Fed actually starts to cut here? And this is the contrarian view. Let's take a look at this next chart. Because here's what I want you to understand. Is the net percentage of domestic banks tightening standards for commercial industrial loans to firms of all sizes? And the way you read this chart is anytime that blue line is above that horizontal black line, banks are on net tightening lending standards. Now, what you should be noting here is going into the dot-com bubble, the financial crisis, the market crash in 2022. What happened? Each and every time the banks were tightening standards. Now, why does that actually correlate to the two-tenths curve? Because here's what I want you to be thinking. Banks borrow at the short end of the curve and lend at the long end. So when rates invert, it means they don't make money lending. They have to find other ways to make money. And in that case, what they do is they curtail their lending activity. They tighten up standards. And that's exactly what you see that gets the Fed to cut rates. Because I want you to be thinking, if the curve was inverted and you're the Fed, how do you fix it? You have to bring short-term rates down. And this is exactly the setup. Because I want you to know, going into the 91 recession, what happens? The curve inverts. Look at what the Fed does as we see the funds rate and rent, it goes down. How about going to the dot-com bubble? You get an inversion, the Fed starts to cut rates. How about the financial crisis? The curve inverts, the Fed cuts rates. You can see it going into the pandemic. You can see the reason they cut around 2024 had everything to do with the curve inversion. Now, the curve is racing down toward that same level again, suggesting that the path for the Fed here, even if worse was to hike rates, it means we're going to see the curve likely to invert again. And that means, of course, the Fed's going to cut rates, not what the market expects them to do. And for gold, you can see now the extremely bullish setup here. But what is that one thing that changes everything about this narrative? And I want to talk about the charts of where I would be looking to go in on gold in a big way. Because currency traders, they're piling into dollar call options after a hawkish Fed. And this is the biggest risk. It's a rising dollar. Let's take a look at the chart here, because we talked about the last week how the dollar was looking to break out here. Now, the risk is if it goes higher. Yes, that is the market giving the Fed all the green light. They're saying, look, short-term rates are going up. The dollar is going up. And that means gold likely to go down. But what if this turns out to be a bull trap? Because remember, I made the case of why the dollar should be going lower, not higher. And if indeed that's what happens, we can go back over the last three years and we can see there was clearly a bull trap in the dollar here. The dollar came down. Then if that were to happen, that would be the confirmation that I need on the bullish case for gold here. So let's take a look at some charts here. I want you to understand how this all plays out from a trading and investing perspective. So what would I be looking at as we pull up the chart of GLD right here? Well, the biggest risk is this red line here. This is a six-month volume profile. This is where most shares have been traded. So what happened is, as gold got above that line, people started selling. And when it broke below, that means there were people that bought in here that were starting to lose money. So they started to sell. So from a bullish perspective, what would I want to see? Well, the first thing is I'd want to see a close over the 200-day moving average. That'd be the first thing I'd want to see. The second thing would be a close over that six-month volume profile. If that were to happen, what you're setting up for is what's called a bear trap. And in that case, it means all these people that were bearish on gold are getting squeezed, prices starting to rally. Then you think about all of those puts. They're going to get flushed out. Then you think about seasonality, and it's going to start to rally. So how am I looking at this from a trade perspective? Does this mean I'm abandoning the S&P 8,000 call? Well, actually, I'm not at all. Because if you look at the yield curve and overlay the market, it tells you very clearly, as the curve goes down, as long rates go down, that's bullish for the market. So you tend to get a blow off top. But that's the point you want to start pivoting over to gold, and in a big way. Because this thing is telling us it's about to take off like an even bigger rocket than it did last time. From there, you want to look for the Fed. Because they're always late to the party. They're always cutting rates way too late. So you want to go from equities to gold, and then into bonds. And you can see a setup here. It's extremely clear. So now, all of a sudden, you've got it, right? You've got the seasonality. You've got the puts. You've got the fund managers looking to buy. You've got the fact that it's undervalued and under-owned. And the charts are starting to set up in a big way. That the macro fundamentals are turning super bullish for gold. And something else we're bullish on is our sponsor for today's show, Real Asset Acquisition. Again, you can find it on the Nasdaq at the symbol RAAQ. And regular computers are hitting a wall on the toughest problems. New drug discovery, advanced materials, logistics, and cryptography. These can take normal supercomputers thousands of years. But quantum computers use quantum mechanics to solve them exponentially faster. IQM Quantum Computers stands out because they actually build and ship real quantum computers. 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Be sure to research before placing any trades. And use your risk control levels when you do. And with that, I'm Steve Admeter. Thanks for watching. Thanks for being fans. Bye now.