Trump and Bessent add fuel to gold’s bullish setup

 

• Trump and Bessent call for aggressive Fed rate cuts
• Market volatility at multi-year lows as dollar softens
• Gold coils in symmetrical triangle with upside bias

Gold Summary

When the President of the United States and the U.S. Treasury Secretary are both calling for rate cuts measured in the hundreds of basis points, at a time when the government has just posted a near $300 billion monthly deficit, unemployment sits at 4.2% and inflation remains well above target, it’s hard to ignore hard assets with scarcity value such as gold.

With long bonds seemingly complicit in the push to slash rates at the short end, the appeal is even stronger.

Gold is coiling within a defined symmetrical triangle, and traders should be alert for a potentially explosive bullish break if highly expansionary fiscal policy collides with extremely loose monetary settings.

Trump, Bessent Pressure Fed

Donald Trump and Treasury Secretary Scott Bessent have ramped up pressure on the Fed this week, both calling for aggressive rate cuts. Trump said rates should be three to four hundred percentage points lower and confirmed he’s close to naming Jerome Powell’s successor as Fed chairman, possibly before the current term ends, with three or four candidates in mind. Bessent was more specific, calling for cuts of 150 to 175 basis points starting with 50 in September, arguing revised labour market data would have justified earlier moves. He also revealed the administration is considering up to 11 candidates for the top Fed job.

Source: TradingView

The push for a “shadow Fed” comes as Trump continues to criticise Powell’s decision to hold rates steady, warning that high borrowing costs are hurting businesses, consumers and homebuyers. While Bessent’s calls are not far from current market thinking, his dovish tone has contributed to the recent shift in rate expectations.

Given Trump’s record of appointing key figures who align closely with his agenda, including his recent nominee to head the Bureau of Labor Statistics, the odds of a moderate taking over the Fed appear slim. History suggests he is more likely to choose someone who will deliver on his desire for steep, rapid rate cuts rather than challenge it.

Markets Complicit with Dovish Deviation

For now, markets remain comfortable with the shifting macroeconomic backdrop. Both short and long-dated Treasury yields have moved further away from the highs seen earlier this year, with curves bull steepening which often occurs at the start of reflationary periods, while inflation expectations, although above target, remain within the range seen over the past two years. Everything is calm. Equity market volatility has rarely been this low, while bond market volatility has collapsed to levels not seen since early 2022 when QE was in full swing and inflation was apparently transitory.

Source: TradingView

Calm and growing certainty that a series of rate cuts are coming has weighed on the U.S. dollar. It has also created an environment where gold and other precious metals tend to shine, even before considering the risk of a pickup in volatility or inflationary pressures, something that looks grossly underpriced to anyone who is not levered long risk assets right now.

The path of least resistance for bullion looks higher, not lower, from a fundamental perspective. The technical picture does not look too bad for the bulls either.

Gold Coils, Bullish Breakout Incoming?

Source: TradingView

Gold continues to coil within a symmetrical triangle pattern, spending far more time testing downtrend resistance over the past month. There have been two false breaks already, including one earlier this month, but with other hard assets carrying a scarcity premium running hard, perhaps it will be third time lucky if the price ventures back there again.

If we see a break and close above the April downtrend, horizontal resistance at $3435 provides the first hurdle for bulls, having capped gains on the last three tests. If it were to give way, as convention would suggest following a bullish triangle break, it would put the current record high of $3500 on the radar.

If gold is unable to clear downtrend resistance, downside levels of note include minor support at $3360, $3334 and $3310 before the uptrend from the May lows kicks in around the $3300 level.

I have described the broader pattern as a triangle but acknowledge the uptrend only has two touches, although the price has continued to set higher lows, keeping the coiling pattern in place. That builds confidence that if we are to see a break eventually, it is more likely to be to the upside than the downside.

The momentum picture marginally favours a bullish bias on the daily timeframe, although the message from RSI (14) or MACD is not a screaming buy. More emphasis should be put on price signals to guide decision making.