Trump’s attack on the Fed fires up gold bulls betting on crisis

President Donald Trump’s assault on the Federal Reserve risks stoking inflation, curbing investment and undermining confidence in the US economy. For gold bulls, it’s a tantalising scenario reinforcing a record-breaking rally that’s made the metal one of this year’s hottest assets.

Bullion powered to fresh peaks above $3 500 an ounce this week, with wagers that the Fed will soon start cutting interest rates, helping to fortify a three-year bull run built on voracious central-bank buying, and mounting worries about the global economy.

Gold has surged by more than a third this year — beating global stocks, most commodities, as well as assets such as Bitcoin — as Trump rolled out a wave of tariffs and embarked on an unprecedented campaign to win influence over Fed policy. That’s dragged the US dollar lower, as well as shorter-term Treasury yields, possibly reinforcing the president’s aim of stimulating spending by businesses and consumers and lowering America’s debt-repayment burden.

Read: Gold hits record high on US rate-cut bets and debt concerns

“Policy volatility is off the charts, and it’s especially emanating from the White House,” said Johan Jooste, chief executive officer at Pangaea Wealth AG. “The policies look to be either accidentally or deliberately dollar-weakening, which is a positive for gold.”

The push against the Fed — an institution at the heart of the US economy, as well as the world’s financial markets — has seen Trump attempt to fire Fed Governor Lisa Cook and repeatedly berate Chair Jerome Powell and other policymakers for not cutting rates fast enough. In addition, he can pave the way for a more pliant central bank with the nomination of a new chair.

Against that backdrop — and given decades of experience showing inflation stays lower, and growth is steadier, when interest rates are set by independent central bankers — some investors are now increasingly betting the president’s assault on the Fed will put the US economy on a darker path.

Among worst-case scenarios for the economy — and favourable for gold — is that the dollar plunges as the Fed is compelled to cut rates despite rising inflation. A weaker currency and rising price pressures could both rapidly erode returns on Treasuries just as the government gears up to borrow more, thereby boosting the appeal of competing havens like gold.

The greenback did rebound sharply alongside gold on Tuesday, with both assets benefiting as a risk-off mood swept through global markets. But in the wake of Trump’s move to oust Fed Governor Cook from her post, there are growing expectations that the relative appeal of gold will grow as he seeks to bend the central bank — and the dollar — to his will.

‘Release valve’

“The dollar will be the release valve for the policies that the administration want to enact,” said Shaniel Ramjee, co-head of multi-asset in London at Pictet Asset Management. Gold is “protection against that weaker currency, or policies that are deliberately built to weaken the dollar,” said Ramjee.

When similar dynamics took hold in the 1970s — with the dollar slumping as then-US President Richard Nixon pressured the Fed to keep rates low in the face of inflation risks — it helped kickstart a 300% rally in gold prices.

For now, the prospect of any similar melt-up in gold is being tempered by doubts over whether Trump will be successful in winning influence over rates. Cook may successfully challenge her dismissal in the courts, but even then, Trump will remain “laser focused” on cutting borrowing costs as he prepares to appoint a new Fed chair, according to Jerry Prior, chief executive officer of $1.7 billion hedge fund Mount Lucas Management LP.

“We’re in early days of rates going lower, and those expectations can move pretty quickly,” Prior said, adding that gold could reach $3,800 an ounce if the Fed rapidly executes three or four cuts by the end of the year. Still, “there’s a lot of work to be done between here and there — we need much lower rates to really see the leg up in gold, and this is step one,” he said.

Trump’s so-called One Big Beautiful Bill tax-cut package is expected to widen the US deficit by $3.3 trillion over the next decade. The bill has exacerbated concerns that the US won’t be able to keep borrowing at its usual pace to pay down existing debt, especially with interest rates at present levels.

While the overall mood in financial markets appears far from panicked, short-term Treasury yields recently sank to four-month lows as rate-cut bets intensified. Those moves at the so-called front-end of the curve, plus weakness in the dollar, have helped to underpin bullion, which benefits as it does not pay interest and is priced in the currency.

Meanwhile, 30-year yields have remained stubbornly high, with investors betting that a premature and aggressive rate-cutting cycle may fan inflation, erode confidence in the central bank and potentially spur a large-scale exodus from Treasuries in favour of other defensive investments like gold.

“The safe-haven assets used to be US dollar assets, but they’re looking less and less of a safe haven now,” said Alexandre Carrier, portfolio manager at DNCA Invest Strategic Resources Funds. “As a default, gold looks like one of the last safe havens.”

To be sure, there’s a big risk for those betting that Trump’s assault on the Fed will end up hurting the economy: He may quickly back down if evidence of the damage grows. But with economic gauges already pointing to a slowdown in hiring, and tariffs weighing on corporate earnings, many banks and investors are turning more bullish on gold, even before the risk that Trump will capture the Fed is fully factored in.

On Wall Street, there’s a broad consensus for more gains. UBS Group AG said last month that the precious metal is “back on top” as it upgraded its price target, while Citigroup revised its near-term outlook higher, partly due to a worsening US economy. Goldman Sachs Group Inc. is also bullish, citing strong central-bank demand and diversification away from the dollar as key supports.

With Fed policymakers scheduled to gather over Sept. 16-17, traders have ramped up wagers on a quarter-point rate cut after Powell — who is due to step down from his role as chair next May — laid the groundwork for a reduction at the recent Jackson Hole symposium. Investors piled into gold-backed exchange-traded funds after the conference and have continued to expand since then.

“I’ve shifted my view quite significantly to become more bullish gold, mainly on the back of the Fed’s independence loss,” said Rajeev De Mello, global macro portfolio manager at GAMA Asset Management SA, adding that prices could reach $4,000 by the end of 2026. “That pressure has been piling on, but it took one Jackson Hole speech, which told us that the Fed was going to move dovish.”

Investors’ allocations to ETFs remain lower than previous highs seen during Covid-19 in 2020, and the outbreak of Russia-Ukraine war in 2022, according to data compiled by Bloomberg. In addition in futures, speculators’ bullish bets are below historical peaks, Commodity Futures Trading Commission figures show. Taken together, that signals there’s still plenty of room to accommodate investors if a pivot away from Treasuries starts to intensify.

“As a value investor, US government bonds look extremely poor,” said Jooste at Pangaea Wealth. “And when you are negative on bonds, you need an alternative.”

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