Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
US Dollar Gold Trend Analysis - 15th June 19
Gold Stocks “Launch” is in Line With Fundamentals - 15th June 19
The Rise of Silver and Major Economic Decline - 15th June 19
Fire Insurance Claims: What Are the Things a Fire Claim Adjuster Does? - 15th June 19
How To Find A Trustworthy Casino? - 15th June 19
Boris Johnson Vs Michael Gove Tory Leadership Grudge Match - Video - 14th June 19
Gold and Silver, Precious Metals: T-Minus 3 Seconds To Liftoff! - 14th June 19
Silver Investing Trend Analysis - Video - 14th June 19
The American Dream Is Alive and Well - in China - 14th June 19
Keeping the Online Gaming Industry in Line - 14th June 19
How Acquisitions Affect Global Stocks - 14th June 19
Please Don’t Buy the Dip in Nvidia or Other Chip Stocks - 14th June 19
A Big Thing in Investor Education is Explainer Videos - 14th June 19
IRAN - The Next American War - 13th June 19
Boris Johnson Vs Michael Gove Tory Leadership Grudge Match Contest - 13th June 19
Top Best VPN Services You Can Choose For Your iPhone - 13th June 19
Tory Leadership Contest Betting Markets Forecast - Betfair - 13th June 19
US Stock Market Setting Up A Pennant Formation - 13th June 19
Which Stocks Will Lead The Cannabis Rebound? - 13th June 19
The Privatization of US Indo-Pacific Vision - Project 2049, Armitage, Budget Ploys and Taiwan Nexus - 12th June 19
Gold Price Breaks to the Upside - 12th June 19
Top Publicly Traded Casino Company Stocks for 2019 - 12th June 19
Silver Investing Trend Analysis - 12th June 19
Why Blue-Chip Dividend Stocks Aren’t as Safe as You Think - 12th June 19
Technical Analysis Shows Aug/Sept Stock Market Top Pattern Should Form - 12th June 19
FTSE 100: A Top European Index - 12th June 19
Gold Surprise! - 11th June 19
How Forex Indicators are Getting Even More Attention in the Market? - 11th June 19
Stock Market Storm Clouds on the Horizon - 11th June 19
Is Your Financial Security Based On A Double Aberration? - 11th June 19
What If Stocks Are Wrong About Interest Rate Cuts? - 11th June 19
US House Prices Yield Curve, Debt, QE4EVER! - 11th June 19
Natural Gas Moves Into Basing Zone - 11th June 19
U.S. Dollar Stall is Good for Commodities - 11th June 19
Fed Running Out of Time and Conventional Weapons - 11th June 19
Trade Wars Propelling Stock Markets to New Highs - 11th June 19
Best Travel Bags for Summer Holidays 2019, Back Sling packs, water proof, money belt, tactical - 11th June 19
Betting on Next British Prime Minister Tory Leadership Betfair Markets Forecast - 10th June 19
How Can Stock Market Go Up When We’re Headed Towards a Recession? - 10th June 19
If You Invest in Dividend Stocks, Do This to Double Your Returns - 10th June 19
Reasons for the Success of the Dating Market - 10th June 19
Gold Price Trend Analysis - Video - 10th June 19
US Stock Markets Rally Hard – Could Another Big Upside Leg Begin? - 10th June 19
Stock Market Huge Cosmic Cluster Ahead: Buckle Up! - 10th June 19
Stock Market Higher To Go? - 10th June 19
The Gold Price Golden Neckline… - 10th June 19
Gold Price Seasonal Trend Analysis - 9th June 19
The Fed Stops Pretending - 9th June 19
Fed Rate Cuts Soon; Bitcoin Enthusiasts Join Wall Street in Bashing Gold - 9th June 19
1990s vs. 2010s - Which Expansion Will be Better for Gold? - 9th June 19
Gold Price Trend Analysis, MACD, Trend Channels, Support / Resistance - 8th June 19
Gold Surges Near Breakout - 8th June 19
Could Gold Rally Above $3750 Before December 2019? - 8th June 19
5 Big Lies About Precious Metals Investing Exposed - 8th June 19
ADL Predictive Modeling Suggests A Big Move In Silver - 7th June 19
US China Trade War Will Start a Recession, or Worse… - 7th June 19
Land Rover Discovery Sport Brake Pads Expected Life, Worn Pads Dash Warning - 7th June 19
The Post Room Selfies Fun at Meadowhall Sheffield, From Game of Thrones to Desert Island... - 7th June 19
SAMSUNG - South Korean Electronics Giant - Investing in AI Stocks - Video - 7th June 19
Gold Price Rally or New Bull Market? - 7th June 19
Digging into the Rising Gold: Trade Tensions, Recessionary Worries and Dovish Fed - 7th June 19
The Risky Stocks Big Lie That Keeps Many Investors Poor - 7th June 19
Gold and HUI Short-term Strength Is a Strong Call to Action - 7th June 19
Fear Drives Stock Market Expectations - 7th June 19 - Chris_Vermeulen
Next British Prime Minister Tory Leadership Betting Markets - 6th June 19

Market Oracle FREE Newsletter

Gold Price Trend Forecast Summer 2019

Trump Is Not Thrilled. But What about Gold?

Commodities / Gold and Silver 2018 Nov 02, 2018 - 05:28 PM GMT

By: Arkadiusz_Sieron

Commodities

Trump is going to influence the US monetary policy or even to destroy the Fed’s independence. This is what many analysts say after the recent President’s comments. But are they right? We invite you to read our careful examination of Trump’s remarks about the Fed’s policy and find out what does it imply for the independence of the US central bank and the gold market.


Trump Is Not Thrilled. But What about Gold?

“I’m not thrilled with his raising of interest rates, no. I’m not thrilled.” This is what President Trump said in an interview with Reuters on August the 20th, 2018. The financial markets did not like his comments and the US dollar declined in a response. Investors worry that Trump’s growing discontent may lead to clashes between the White House and the US central bank, and potentially to weakening or even to the loss of the Fed’s independence. In such a scenario, we could see higher inflation, as central bank’s independence promotes price stability.

Are these concerns justified? Well, unfortunately yes, at least to some extent. When politicians alter monetary policy for their own goals, it never ends well (for the economy, gold usually shines then). You can ask the Turks who suffer now because of the depreciation of the Turkish lira, resulting from President Erdogan’s influence on the central bank.

OK, I know what you are going to say: the United States are not Turkey. That’s true, but there are ugly precedents even in the US (actually, the entire premise of Fed’s independence is in a sense absurd, as the central bank was created by the Congress and the seven members of the Board of Governors are nominated by the POTUS and confirmed by the Senate). For example, there was a clash between President Lyndon Johnson and Fed Chair William McChesney Martin, which supposedly included physical assault (as the story goes, Johnson summoned Martin to his Texas ranch and physically shoved him around his living room).

But the most notable episode occurred in the 1970s, when President Richard Nixon pressured Arthur Burns, the chairman of the Federal Reserve nominated by Nixon himself, to engage in expansionary monetary policies in the run-up to the 1972 election. The released Nixon tapes revealed that President pressured Burns to keep interest rates low to help prevent the rise in unemployment rate. As one can see in the chart below, the federal funds rate has been declining since 1970 when Burns became the Fed Chief and it was kept low later, despite relatively high inflation rate.

Chart 1: US federal funds rate (blue line, left axis, in %) and the CPI annual rate of change (red line, right axis, in %) from 1970 to 1972.


The disastrous results of the Fed’s monetary policy in the 1970s are well known: there was stagflation, i.e. high inflation and high unemployment with slow economic growth, which was not defeated until Paul Volcker became the next Fed Chair. As a reminder, there was a gold bull market in the 1970s.

Although Trump’s comments were not appropriate, it should be now clear that he is far from Nixon’s level of interference. Investors have to remember that Trump is a Twitter President, who often behaves unconventionally. And we should not forget about the context of his remarks. In that interview with Reuters, the full quote was as follows:

I’m not thrilled with his raising of interest rates. No, I’m not thrilled. We’re at a - we’re negotiating very strongly – I don’t call it a trade war – we’re negotiating very powerfully and strongly with other nations. We’re going to win. But during this period of time, I should be given some help by the Fed (…)

Hence, it should be clear that Trump was not thrilled with the raising of interest rates only in the context of trade battles he was leading. We mean his accusations that other nations weaken their currency, which supposedly help their exports, while the US dollar appreciates, partially due to the Fed’s tightening cycle, hurting the economy.

Moreover, also in an interview with Reuters, Trump said that “I don’t have an accommodating Fed. Am I happy with my choice? I’ll let you know in four years. I’ll let you know in seven years.” And in a July interview with the CNBC, Trump said that he was happy about rising interest rates. However, he also added that “but at the same time I’m letting them do what they feel is best.” All this suggests that Trump is not going to interfere with the Fed’s independence or to replace Powell. It is bad news for the gold market.

By the way, Powell seems to be unmoved so far and he is going to continue the gradual tightening policy. Actually, Trump may talk a lot, but the way for a president to influence the Fed is solely through his nominations and… potentially dismissals. President has already picked four people for the board to date: Randal Quarles, Marvin Goodfriend, Richard Clarida, and Michelle Bowman. Importantly, none are known as decidedly dovish, which indicates that Trump could just play the role of complaining about the Fed’s policy in the political theater.

When it comes to dismissals, the common perception is that POTUS can’t fire the governors once he takes office. But the Federal Reserve Act says that governors, including the Fed Chair, may be removed for cause by the President. The bill does not define what the word “cause” actually means, but no Fed chief in the modern era has been removed under that provision. Moreover, investors should remember that the Senate must confirm all replacements, so remaking the central bank through appointments is not an easy task.

The key takeaway is that Trump made some critical remarks about Powell and the Fed. Some analysts started to worry about the Fed’s independence. For the precious metals bulls, the clash between the White House and the US central bank would be positive. The weaker independence means acceleration in inflation, and possibly higher gold prices.

However, Trump’s actions did not follow the words. He nominated so far moderate to hawkish people to the Fed Board. Trump might be aiming to make a theatrical impression with his comments, but he is limited by the legal system and rule-drive institutions. Gold investors should place less weigh on President’s remarks. The sharp words cut like a sword, but they are, at least so far, a small threat to the Fed’s independence.

Thank you.

If you enjoyed the above analysis and would you like to know more about the gold ETFs and their impact on gold price, we invite you to read the April Market Overview report. If you're interested in the detailed price analysis and price projections with targets, we invite you to sign up for our Gold & Silver Trading Alerts . If you're not ready to subscribe at this time, we invite you to sign up for our gold newsletter and stay up-to-date with our latest free articles. It's free and you can unsubscribe anytime.

Arkadiusz Sieron
Sunshine Profits‘ Market Overview Editor

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Arkadiusz Sieron Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules