Gold is more appealing as an investment due to the uncertainty that has recently surrounded the dispute between US President Donald Trump, and the Federal Reserve.
The financial markets are surprisingly quiet despite the unprecedented US attacks against the Fed.
There are no indications of increased nervousness on the bond, stock or forex markets following Trump’s announcement that Fed Governor Lisa Cook was dismissed.
In the precious metals market, there is a growing level of uncertainty. The price of gold has recently reached a record high and exceeded $3,500 an ounce. This trend is however not seen across all markets.
On Tuesday, the December COMEX gold contract hit an all-time high price of $3 578.20 per ounce.
Long-term Doveish monetary policies
Commerzbank AG believes that the current rally in the gold price is not driven by changes in the US short-term interest rate outlook. These have only been marginal in the last few weeks.
In a recent report, Thu Lan Nguyen of Commerzbank’s FX and commodities department said that the market’s reaction to Powell’s comments at the Jackson Hole symposium was stronger than Cook’s firing.
The Fed could be re-orienting its reaction function in the future to a more conservative monetary policy.
Cook’s accusations suggest that the government may pressure other FOMC Members to make significant rate reductions.
Even if the inflation risk increases, this situation may lead to a Fed that is more cautious in its tightening of monetary policy.
In other words, excessively low rates of interest increase the risk that inflation will rise over time.
Nguyen stated that gold investment is more appealing in this environment.
Gold’s recent rally is not exceptional
Gold prices are up over $100 from Friday. This isn’t unusual when you compare it to the year-to date trends.
The calmness of the market may have been due to the belief that Trump’s dismissal attempt will fail in court. This is consistent with other markets’ general calmness.
Cook filed a suit to challenge her dismissal. She claims that her mortgage fraud allegations are not a valid “cause”, but a pretense used by the US government to manipulate monetary policy.
Cook, along with most Fed Governors, voted recently to keep interest rates unchanged. Trump could also face a similar result, which is essentially a loss, in the case of US tariffs.
An appeals court in the US recently found that some tariffs had been illegally imposed. A final Supreme Court decision is expected.
Fed could yield under Trump’s pressure by 2026
Nguyen said:
The risk of an excessively loose monetary policy could also be avoided for now if it can be confirmed that checks and balances remain in place and the courts are blocking the White House’s efforts to influence the Federal Reserve.
In this scenario, the market reaction so far is justified.
It is likely that gold will experience a slight drop in price. The US government may still try to force the Fed, even if Cook is successful in the court and retains her position.
Nguyen stated that “for this reason we expect, at least next year, when Jerome Powell’s tenure as Fed chair expires the institution to yield in some measure to the government’s pressure.”
Commerzbank’s US experts expect to see two rate reductions this year and another four in the following year. This will bring down the policy rate from 6% to just 3%.
The price of gold is set to increase.
Geopolitical forces continue to support precious metal prices.
Gold’s price has been rising significantly in recent months, but this is not entirely due to the decreasing likelihood that Ukraine’s war will end soon.
The current environment is favorable for gold, as shown by the strong inflows of gold ETFs. These have reached 30 tons during the past four trading days.
The world’s biggest gold ETF saw its largest single-day inflows since April, when tariffs disrupted the market.
In the next few months, gold is expected to continue rising.
Nguyen has been added to the list
By the end of the year, we project that the price per troy-ounce will be USD 3,600.
This article Trump and US Fed conflict may push gold price towards $3,600/oz within the year appeared first on ICD
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