Yesterday, Trump nominated Powell as Fed Chair. What does it imply for the gold market?

On Thursday, president Donald Trump has finally ended weeks of speculations and named Jerome Powell as his pick to lead the Federal Reserve. “I am confident that with Jay as a wise steward of the Federal Reserve, it will have the leadership it needs in the years to come”, said Trump during the announcement in Washington. His choice was largely expected, so gold saw little reaction after the nomination (at 1900 GMT), as the chart below shows. This is what we predicted in the latest edition of the Market Overview, writing that “he leads the polls, so that choice would not surprise the market.”

Chart 1: Gold prices over the last three days.

How would his nomination impact the gold market? Well, Powell has been always in line with Yellen, so his choice implies a keeping of the status quo. Powell is, thus, likely to continue the Fed’s current policy of gradually rising interest rates. The only difference between him and Yellen (except political views) is that Powell seems to be more eager to support financial deregulation. Financial deregulation would not be supportive for the gold prices, as it could boost the risk appetite and positive sentiment toward the financial sector.

On the other hand, Powell lacks the deep background in economics (he has no degree in economics – instead, he is a lawyer). Hence, the risk of a policy mistake is perhaps slightly higher under Powell’s leadership than under Yellen’s. However, gold bulls should not count on that – Powell may err in either direction. And degrees in economics did not help Greenspan and Bernanke to avoid the Great Recession.

Anyway, investors should not forget that Trump will have the opportunity to reshape the Fed even further. There are three more open seats on the board of governors (if Yellen steps down from the board, there will be four vacancies). In particular, John Taylor may join the Fed, as he leads the polls for the next Fed Vice Chair. Hence, Powell’s nomination is not the end of speculation about the future stance of the U.S. central bank. We believe that the Fed would be slightly more hawkish after all the personnel changes, which should not be positive for the yellow metal.