Gold eases from $3,385 highs as Fed’s Cook refuses to resign
- Gold pulls back from daily highs at $3,385 as Fed Governor Lisa Cook refuses to resign.
- The Precious metal hit fresh two-week highs earlier in the day after Trump's order to fire her.
- The US Dollar remains on its back foot on heightened expectations of Fed cuts and growing concerns about the bank's independence.
Gold‘s rally from Monday’s lows at $3,350 has been capped on Tuesday after hitting fresh two-week highs at $3,385. The Precious metal has stalled below $3,380, as the US Dollar regains lost ground, following Fed Governour Lisa Cook’s rejection of President Trump’s calls to fire her.
Trump shocked markets, once again, on Monday, announcing an order to fire Federal Reserve Governour Lisa Cook on an alleged mortgage fraud. The news hit the US Dollar with investors concerned about the ability of the central bank to act independently, amid expectations that this move would pursue a faster monetary easing cycle by the central bank.
The XAU/USD pair, however, was capped on Tuesday’s European session, as the US Dollar Index bounced up from lows on the back of Cook’s comments dismissing Trump’s removal order.
In a press conference on Tuesday, Governor Cook said that she will continue to carry out her duties at the central bank and that the president has no authority to fire her. These comments have restored some confidence in the bank and provided support to the US Dollar.
From a wider perspective, however, the US Dollar remains on its back foot against the precious metal, which has appreciated nearly 2% amid higher bets for Fed easing. In this context, Friday’s PCE Price Index data will provide further clues on September’s Fed decision and determine Gold’s near-term direction.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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