Gold hits record high and dollar weakens on Fed independence worries
#GOLD hits record high and dollar weakens on Fed independence worries
Long-term inflation expectations tick up after US prosecutors launch criminal investigation into #chairPowell
Gold prices climbed as much as 2% to $4,600 a troy ounce for the first time on Monday Angel García/Bloomberg
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Ian Smith and Rachel Rees in London and William Sandlund in Hong Kong
Gold jumped to a record high and the dollar fell on Monday after US prosecutors launched a criminal investigation into #FederalReserve chair Jay Powell, stoking concerns about the central bank’s independence.
The precious metal climbed as much as 2.7 per cent to more than $4,600 a troy ounce, while the dollar weakened 0.3 per cent against a basket of major currencies including the pound and the euro. Silver jumped as much as 7.8 per cent to a fresh record above $86 per troy ounce.
US stocks were marginally higher, recovering from earlier falls.
The yield on the 10-year Treasury, which moves inversely to the price, climbed to nearly 4.21 per cent before falling back to 4.18 per cent by lunchtime in New York.
“The risk is that the gloves are off for the coming quarters” between the White House and the Fed, said Kevin Thozet, a member of the investment committee at asset manager Carmignac.
Powell on Sunday said the Fed had received grand jury subpoenas and a threat of criminal indictment from the justice department relating to his testimony before Congress about a $2.5bn renovation of the central bank’s headquarters.
Investors said the dollar and gold moves reflected the risk that US policy rates could be held lower than they would otherwise be due to political pressure, with the potential for higher long-term inflation and monetary policy uncertainty as a result.
Market measures of long-term inflation expectations also ticked up, with 10-year break-even rates reaching 2.3 per cent for the first time since November.
We’ve been here before — political pressure on the Fed means a lower US dollar, higher long-end US Treasury yields and higher inflation expectations,” said Mike Riddell, a fund manager at Fidelity International.
But the scale of the market moves was relatively small, with many investors backing rate setters to remain independent.
“My expectation again is that the committee will continue to make decisions on the back of their mandate and the economic data,” Jan Hatzius, chief economist at Goldman Sachs, told a conference in London.
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