Gold prices lost their glitter today as President Trump’s expected pick to be the new head of the Federal Reserve eased concerns that an Oval Office ‘puppet’ could threaten interest rate independence.
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Gold futures were down 3.2% at $5,182.30 per ounce, while spot gold was down 2.83% at $5,067.
Gold Reversal
The reversal in fortunes for gold which has been galloping forward since the start of the year and for the last 12 months – see below – was down to expectations that Trump would announce Kevin Warsh as the next Federal Reserve chair.
Warsh served as Fed governor between 2006 and 2011, a period which included the great financial crisis.
This experience eased concerns that the next chair, following Jerome Powell, would be less independent and more of a Trump puppet than anything else.
Dan Coatsworth, head of markets at AJ Bell, said: “Investors seem to be taking this as a positive sign in terms of Fed independence – with Warsh perceived as a more orthodox choice versus some of the other mooted names. The decline in US futures prices and uptick in the dollar reflect the thinking that Warsh won’t be a marionette for the Trump administration. It implies the chances of aggressive rate cuts in 2026 regardless of the backdrop, something which Trump has not been shy in calling for, are slimmer.”
Dollar Gets a Boost
Although lower interest rates tend to be positive for the gold price, the Warsh news seemed to be more positive for the U.S. dollar. It has weakened in recent weeks, but the U.S. dollar index which tracks the greenback against a basket of currencies, climbed 0.2% to 96.44 in early trading today.
A stronger greenback tends to weigh on gold prices as this makes the precious metal, which is typically priced in dollars, more expensive for overseas buyers.
It could even mean the first crack in the remarkable rise of gold and related ETFs such as the SPDR Gold Shares ETF (GLD), which has been driven by investors seeking a safe haven in uncertain economic and geopolitical times.
“Traders will be watching closely to see if this is a short-term correction or a more pronounced reversal of the big rally in these metals over recent times,” Coatsworth said.
Kathleen Brooks, research director at XTB, added: “In the short term, the correlation between gold and the dollar is strong, so as the dollar strengthens and the dollar ‘debasement’ trade gets scaled back, this could weigh on gold and silver prices.”
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