Is Donald Trump wreaking havoc with the price of gold?

Metal mayhem sounds like a music festival with howling vocals and crunchy guitars, but it’s actually what’s going on in the markets – all thanks to Donald Trump. Heavy metal could be the perfect soundtrack for his second term. Gold and silver, the red-hot-chilli-pepper of investment commodities that people were piling into last year, and which last month hit record highs (almost $5,600 per ounce, in the case of gold), have this week just as suddenly lost their shine. The collapse – on Monday, gold was down as much as 7 per cent to less than $4,500 an ounce, while silver lost more than 10 per cent of its value, after it had been soaring – seems tied to one event: Trump announcing his pick to run the US Federal Reserve. The choice of Kevin Warsh, a former Fed governor and “hard-money hawk”, to take over from Jerome Powell, shouldn’t have come as a massive surprise; he has long been among the frontrunners. However, what’s spooked the metal markets is that he is seen as a tough-as-nails hawk – and not necessarily someone who will follow his boss’s edicts to cut interest rates whenever the president is feeling testy about his poll ratings. Gold and silver are seen as protective hedges against US inflation. If this rises, and the dollar weakens, the price of gold and silver, typically quoted in dollars, goes up. However, if the Fed under Warsh holds the line, and takes his fellow member of the rate setting Federal Open Mark Committee (FOMC) with him, there is much less reason to worry about inflation and so much less reason to hold gold and silver. Ditto bitcoin, which has also been sent plunging at the suggestion of Warsh’s apparent anointment – although the bitcoin price does crazy things without anyone’s help.Given that the Fed’s job is to keep inflation under control, it’s just possible Trump has read the tea leaves and decided that it might be better to appoint someone who will do that as opposed to some of the more sycophantic, dovish alternatives on his list. Warsh, a sharp-clawed hawk during his tenure as a Federal Reserve governor during the Bush administration, looks like a solid, sensible pick, not something that has always been guaranteed with Trump at the helm. How might Warsh govern? Well, he has expressed the view that AI will significantly boost America’s productivity. If he’s right, the Fed could cut rates without stoking inflation. The rosy view of AI holds that it could reduce the need for a lot of dull, boring, box-ticking work freeing employees up to do more productive things. I wouldn’t rule it out. But in the short-term? It’s just as likely that the AI bubble will pop, bringing with it a world of pain. Arguably, Trump’s policies are, in and of themselves, inflationary. His tariffs and fiscal irresponsibility both come with consequences – malign ones, for which the bill will come due sooner or later. When the world is going to hell, gold is where skittish investors park their money to wait out the storm. And right now… well, you hardly need me to spell it out: it’s there on every home page and every news bulletin.