Gold and silver prices plummeted following US President Donald Trump’s decision to nominate Kevin Warsh as the next Federal Reserve Chairman. Current Fed Chairman Jerome Powell could resign as early as May, leaving the seat open for a successor chosen by President Trump. Mr. Warsh is a supporter of President Trump’s desire to rebuild the dollar and lower interest rates, and investors began selling precious metals again last week in search of the greenback.
This decline caused a collapse in the prices of both silver and gold, with both assets declining by nearly double-digit percentages. After months of record highs and soaring valuations, spot gold and silver prices have fallen 9% and 28%, respectively. Furthermore, the US stock market also fell, with all major indexes recording small declines.
The collapse in gold and silver and the stock market decline suggest that investors see rate cuts less likely under a Warsh administration than under the alternative. Gold and silver prices typically rise in response to concerns of instability or inflation. Therefore, there appears to have been concern that Mr. Warsh’s appointment as chairman could lead to more rapid and frequent interest rate cuts, which could lead to negative inflation.
Traders will then be watching the U.S. Bureau of Labor Statistics’ January U.S. jobs report, which will be released at 8:30 a.m. ET on February 6, for the outlook for lower interest rates. Any signs of rate cuts could take a further hit on silver and gold prices, potentially shifting expectations back to the US dollar and equities.
