What Does Trump’s New Fed Chairman Mean for Gold?

After weeks of non-stop climbing prices, gold and silver both saw massive selloffs at the end of January. While some of it was likely profit-taking, one major reason for the selloff was President Trump’s nomination of Kevin Warsh to be the next chairman of the Board of Governors of the Federal Reserve System.

Warsh has a reputation for being relatively hawkish on monetary policy, which apparently spooked commodities traders. Gold prices fell 9% on January 30th, while silver prices fell 28%.

But why is Warsh considered bad for gold prices? And is he really as bad as some traders fear?

Key Takeaways

• Gold and silver experienced sharp selloffs after Warsh’s nomination due to concerns about his reputation as a monetary policy hawk.
• A more dovish Fed is generally considered to be good for gold.
• Despite the dip to below $5,000, analysts still consider a strong case for gold, and some think the price could rise to over $7,000 an ounce.

Warsh’s History With Monetary Policy

Warsh previously served as a member of the Fed’s Board of Governors from 2006 to 2011. He resigned from the board in 2011 after having criticized the Fed for its overly accommodative monetary policy.

At the November 2010 Federal Open Market Committee meeting, Warsh stated to Chairman Bernanke, “If I were in your chair, I would not be leading the Committee in this direction, and frankly, if I were in the chair of most people around this room, I would dissent.” And at a subsequent speech in New York that same month Warsh criticized both quantitative easing and the US government’s fiscal policy.

But more recently Warsh has indicated his willingness to lower interest rates, citing factors like increased productivity growth. Is that just his way of placating President Trump in order to get the nod as Fed chairman, or has Warsh really changed his tune?

Of course, Warsh isn’t a shoo-in for the position. He still has to navigate the confirmation hearing process, and Senate Democrats have stated that they’re unwilling to consider his nomination until President Trump drops what they believe are pretextual prosecutions against current Fed Chairman Jay Powell and current Fed Governor Lisa Cook.

Will Democrats be able to stymie Warsh’s appointment, or will Trump back off those prosecutions now that he will have his man at the Fed?

Why Gold Markets Want a Dovish Fed

In general, precious metals markets are supposed to do better when the Fed is more dovish, meaning that monetary policy is accommodative and interest rates are lower. This is for a number of reasons.

First, lower interest rates can make bonds a less attractive asset option, as their yield drops. When bond yields are high, there’s an incentive to buy bonds because of that “guaranteed” high interest rate.

But when bond yields fall, the case for non-yielding gold becomes stronger versus buying low-yielding bonds.

It wasn’t just precious metals markets that hemorrhaged value after the announcement of Warsh as the next chairman of the Fed. Commodities in general pulled back, with copper prices falling 3%.

Lower interest rates lower the cost of holding and storing physical commodities like gold, allowing consumers and users to increase their demand and build up inventories, which can raise prices.

Accommodative monetary policy is also often an indicator that the economy may be heading toward a downturn, and thus can be seen as a precursor of a possible recession. As a safe haven asset, gold is a popular choice for people looking to help safeguard their wealth against possible loss during a recession.

Which Way Could Gold Prices Move?

The announcement of Warsh’s nomination took some of the air out of the gold price, which had pushed above $5,000 an ounce for the first time this year. While the gold price has bounced around since then, many analysts expect the yellow metal to continue its growth over the long-term, even if prices don’t rise as meteorically as they had in recent weeks.

Even if the expectation is for Warsh to be more hawkish, that may not end up being the reality of Warsh’s tenure. If Warsh ends up taking over right before a recession, there’s a good chance that economic events could force his hand, and could force him to be more dovish than he would otherwise like to be.

It’s very easy to be hawkish when you’re not the one in charge and not the one taking blame for the economy circling the drain. When you’re the chairman and the whole world is watching your every move, not to mention the President is breathing down your neck, it’s a whole different story.

Markets may think that Warsh is going to be a hawk, but he may find himself in a tough spot once he actually becomes chairman.

Put Gold to Work For You

With gold prices having pulled back recently due to fears of Warsh’s hawkishness, now is the time to start buying the dip while gold gets more affordable. Gold recently rose to nearly $5,600 an ounce, in a frenzy of nearly daily price growth.

Recent profit-taking has pushed gold back under $5,000 an ounce, leaving a lot of room for future growth. Many analysts expect gold to continue increasing in price, with expectations for 2026 reaching to $6,000 or even over $7,000 an ounce.

Many people think gold is expensive today, and it certainly is when compared to where it was just a few years ago. But conditions are right today for the gold price to keep rising.

Safe haven buying of gold has been increasing over the past year as fear surrounds the economy. Geopolitical risks are rising, helping boost even more safe haven demand.

Gold’s tremendous 65% price gain last year helped bring increased attention to gold and boosted momentum trading. With all of these factors coming together, we may look back years from now at $5,000 as a price floor rather than a ceiling.

Now is the time for you to take advantage of gold’s potential price growth by buying gold to add to your portfolio. Whether you want to start a gold IRA to help protect your retirement savings, or whether you would rather make a direct cash purchase of gold coins to keep for yourself at home or in a safe deposit box, Goldco has options available for you.

With over $3 billion in precious metals placements and over 8,000 5-star reviews, Goldco has worked hard to provide outstanding customer service and exemplary gold products to our customers.

Call Goldco today to learn more about how to buy gold, and find out why our customers believe Goldco is one of the best gold companies in the country.