Gold Prices Look to Warsh, Bonds for Hawkish Clues

Gold Talking Points:

As Treasury rates threaten a breakout to fresh highs Kevin Warsh has the unenviable task of trying to represent Fed independence while not upsetting President Trump like his predecessor Jerome Powell.
While Trump doesn’t have a vote at the Fed he can make it very uncomfortable for the newly-appointed Fed chair, and he’s been very open with his desire for rate cuts dismissing the fact that the Fed only controls short-term rates and longer-term Treasury rates are at the mercy of the market (and Treasury issuance).

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This is a big week. Of course, we have the central bank rate decisions from Japan and the US and that’s probably going to be a big focal point. But we also have an abundance of important earnings reports, with a third of the S&P 500 reporting quarterly numbers, and this is the kind of week where quite a bit can get lost in the shuffle.

In this video for StoneX TV I share my opinion, which is something that I think can be construed as a long-term positive for gold and stocks. While Warsh has sounded hawkish thus far, it’s difficult to imagine that he errs on the side of hawkish if equity prices are hanging in the balance. Trump had said during the interview process that a requirement for whomever he nominated would be a willingness to cut rates – but if Warsh came in and just automatically echoed that sentiment long-term bond yields would become unmoored, like the reaction we saw to Fed rate cuts in 2024.

Higher inflation expectations would feed into lower Treasury prices (and higher yields) and this would bring a counteractive response to global markets as higher borrowing costs would act as a drag on the global economy.

So, it makes sense, especially given where inflation prints have been, that Kevin Warsh has sounded hawkish – but he didn’t need to use that ammunition of a dovish lean with stock prices at highs. Now that equities have shown a bit of pullback, and the past couple of inflation prints have moderated, there’s probably less urgency for Warsh to given the appearance of Fed independence.

I’m expecting Warsh to sound less hawkish on Wednesday and this is something that I think can help gold this week, as the $4k level has, so far, held support quite well. I explained that in detail in this week’s forecast and so far this week, buyers are making a move with another test of the $4100 level.

Gold Daily Price Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Market Analyst, Global Macro

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