Gold sold off after the de-escalation over Greenland but bidders were waiting in the wings and waiting at $4772, which was the session low. We’re now more than $100 above that level and threatening $4900 for the first time.
Similarly, silver touched $96 for the first time, rising 3% on the day.
The $5000 level for gold and $100 for silver are now both a small reach away and those will act as magnets for the market.
The short-term risk I see is around Trump’s decision on the Federal Reserve Chairman. He once again appeared to rule out former-favorite Kevin Hassett in Davos. That has Kevin Warsh as the betting favorite but Rick Rieder saw his odds rise starting last week after an interview with Trump and some favorable media leaks afterwards.
There are differing views on Warsh but I see him as a Trump yes-man, who has lobbied for the Fed job for years. I’d expect him to be a dove and toe Trump’s line about significantly lowering interest rates. He might struggled to do that given the composition of the FOMC but he’s more-dovish on the margins.
In contrast, Rick Rieder is seen as an intelligent man who would make a great Fed chair. He’s seen as independent, thoughtful and someone who would preserve the value of the US dollar. That’s a negative for gold and that’s why I see headline risk on the announcement.
It’s likely to be temporary though. The events in Davos this week highlighted the cracks in the global world order and the US at the center of it. Germany’s Merz sounded determined to further integrate and insulate Europe and that was a common refrain. It was hard to listen to Trump yesterday and envision anything but three more years of turmoil. That should continue to keep a bid under gold.
One warning is that the seasonal tailwind for gold is coming to an end. It’s a driving factor that I highlight year after year so it would argue for some caution, particularly if gold and silver can tag those big numbers in the short term.
This article was written by Adam Button at investinglive.com.