It was fun while it lasted, but the announcement of the next Federal Reserve chair may have brought the party in the silver and gold markets to an end.
What happened: Donald Trump picked Kevin Warsh to succeed Jerome Powell as chair of the Fed, sparking a sell-off in the metals markets as traders breathed a sigh of relief that the central bank would keep rates high enough to quash inflation.
By the close of markets, gold had dropped 9%, silver was down 26%, and platinum fell 17%.
Why it’s happening: Warsh is regarded as a “hawkish” figure by Wall Street, in that he is seen as committed to keeping inflation in check and defending Fed independence from political influence.
His selection has, for now, restored confidence among investors that the central bank won’t cut rates just because Donald Trump wants them to. Worries about that contributed to a record run-up in the price of metals as a hedge against a weakening U.S. dollar. `
Yes, but: Warsh’s mentor and legendary investor Stanley Druckenmiller told the Financial Times the incoming Fed chair may not be as hawkish as Wall Street thinks, and that he is “open-minded” when it comes to lowering interest rates — even during periods of growth.
Why it matters: Whatever his deep-down beliefs about monetary policy happen to be, Warsh is set to take over the Fed at a time when much of the world is trying to wean itself from American influence, economic and otherwise. How he leads will play a role in accelerating or arresting that transition.