- Gold challenges the $4,600-an-ounce level for the first time
- Silver continues its stunning run as it moves above $84 an ounce
- DXY trade-weighted dollar basket falls
- Investors wary of White House pressure on the Fed, as the Johnson/Martin and Nixon/Burns eras offer unsettling precedents
“Gold and silver are getting a further boost, not that they necessarily needed one, from the US Department of Justice’s investigation into cost over-runs at the refurbishment of the US Federal Reserve’s Marriner S. Eccles building in Washington, DC, and assertions from the central bank’s chair, Jay Powell, that the case is a politically inspired one,” says AJ Bell investment director Russ Mould.
“President Trump’s desire for lower interest rates, and antipathy toward Mr Powell, are both well-known, and, even if he is dismissing claims that the DoJ action is an attempt to influence the Fed, financial markets will look back at prior episodes of presidential pressure on policymakers with unease.
“The Powell-led Fed has cut the headline US interest rate to 3.75% from 5.25% since summer 2024 and ended its programme of Quantitative Tightening (QT), but President Trump has called for further cuts and his appointee to the Board of Governors, Stephen Miran, has also pushed for much looser monetary policy.
“This is in keeping with what looks like a policy to get the US economy to run hot and generate the sort of growth that will make the ever-growing Federal deficit, debt-to-GDP ratio and Federal interest bill more manageable. Trump seems to favour lower interest rates, lower oil prices, a weaker dollar, lower personal taxes and less regulation as part of this plan.
“An annualised GDP growth rate of 4.3% in the third quarter, and the Atlanta Fed GDPNow survey’s forecast of a figure of 5.1% for the fourth quarter suggests the policies are having the desired effect, but jobs growth remains modest, and the president seems keen on pulling as many policy levers as he can.
“He and his supporters may be tempted to argue that a Fed Funds rate of 3.75% and an inflation rate of 2.7% makes for a real, inflation-adjusted interest rate of 1.05%, a figure which looks restrictive, at least compared to the post-financial crisis era.
Source: FRED – St. Louis Federal Reserve database
“However, markets seem concerned that the presidential stance could yet lead to sustained inflationary pressure, either because the economy runs too hot, or expectations for price increases start to rise. According to FRED, the St. Louis Federal Reserve database, expectations for where inflation will be in five years’ time in the USA are starting to tick higher:
Source: FRED – St. Louis Federal Reserve database
“Moreover, the US 10-year Treasury yield is higher now, at 4.17%, than it was when the Fed began cutting rates in September 2024, when the benchmark’s yield stood at 3.71%.
Source: LSEG Refinitiv data
“Besides inflation concerns, that could reflect worries over the burgeoning US Federal deficit, and thus future supply of Treasuries, especially as the Federal Reserve is no longer a blind, price-insensitive buyer of last resort. It could also be the result of wider worries over Fed independence and whether interest rates could go lower than may be ideal as a result of political pressure.
“In the 1960s, Lyndon B. Johnson leaned heavily on then Federal Reserve chair William McChesney (‘Bill’) Martin Jr.
“Bill Martin may perhaps be best known for being accredited with the comment that it is the Fed’s job to ‘remove the punch bowl’ before the economic and stock market party gets out of hand. But some economists and historians argue he was slow to raise interest rates in the mid-to-late 1960s as President Johnson tried to fund his ‘guns and butter’ policies, with the result that inflation ran hot and the US stock market enjoyed a boom, thanks in the main to so-called ‘onics and tronics’ go-go tech stocks, which ultimately proved unsustainable.
“Martin did ultimately tighten policy, rather than cut it, but he moved most decisively after spring 1968 and Johnson’s announcement that he would not stand in the US presidential election of that year.
Source: FRED – St. Louis Federal Reserve database
“That ballot was won decisively by the Republicans’ Richard M. Nixon, who also wished to fund both the Vietnam War and domestic welfare programmes, with the result that he applied pressure on Martin’s successor at the Fed, Arthur Burns, who took the post in 1970.
“Burns’ tenure ran to 1978, as he worked with both Nixon and Gerald Ford, and he has tended to carry the can for the inflationary outburst which did so much damage to the US economy and global financial markets for much of that decade. While the oil shock of 1973 was well beyond his control, Burns is often accused of having been too quick to cut interest rates and thus ushering in the second wave of inflation that came in the latter half of the 1970s. Paul Volcker’s hair-shirt policies, and high-teens interest rates of the early 1980s, are held in much greater esteem as they, alongside Reaganite supply-side reforms, get the credit for taming inflation and setting the US economy back on the path to prosperity.
Source: FRED – St. Louis Federal Reserve database
“Keen students of history will remember that gold was one of the very few assets which provided a positive total return during the inflation-ravaged 1970s, and that the dollar lost substantial amounts of ground – the DXY (‘Dixie’) index, which measures the greenback against a basket of currencies plunged from 120 to barely 95 during Burns’ tenure at the Fed and then kept on going all the way to barely 80 under his successor, William Miller, until the Volcker monetary medicine stopped the rot.
Source: LSEG Refinitiv data
“This perspective may well be colouring some asset allocation decisions now, especially as the dollar is again on the slide. It has dropped from 110 to 98 since President Trump’s second inauguration ceremony, just under a year ago.
Source: LSEG Refinitiv data
“The dollar’s losses and perhaps fears of more in the face of further perceived presidential caprice, may be persuading investors and central banks alike to seek other stores of value, or havens, in the form of gold and silver. Both are enjoying their third bull market since Nixon withdrew America from the gold standard in August 1971.
Source: LSEG Refinitiv data
“In the past year, silver is up by 170% and gold by 70%, in dollar terms. The gold price reached more than 100 times that of silver early in 2025, well above the post-1970 average of 60 times, but gold now trades at just 55 times silver, to suggest the latter may be getting a bit overheated, at least on a relative basis. That said, silver is trending strongly, and the gold/silver ratio went below 20 when the Bunker Hunt brothers tried – ultimately unsuccessfully - to corner the market in the late 1970s.”
Source: LSEG Refinitiv data
