KEY POINTS:
- US Department of Justice subpoenaed the Federal Reserve in relation to the headquarters renovation dispute
- The DOJ move is actually a political pretext to try to fire Fed Chair Powell "for cause" given his reluctance to cut interest rates quickly
- Risk of loss of Fed independence is a tailwind for gold given the repercussions on inflation and the US Dollar
- Gold jumped to a new all-time high following the news
FUNDAMENTAL OVERVIEW
Gold jumped into a new all-time high today following the news of the US Department of Justice subpoenaing the Federal Reserve in an unprecedented move that escalates the ongoing conflict between President Trump and Fed Chair Powell for not lowering interest rates faster.
The official reason is that the DOJ is focusing on the Federal Reserve headquarters renovation to see whether Powell made misleading or false statements to the Senate Banking Committee regarding the scale, costs and luxury features of the project.
In reality, everybody knows that this is just a political pretext to intimidate the Fed Chair and force him to cut interest rates faster. We have already seen this kind of intimidation with Fed Governor Cook last year when Trump tried to fire her for cause without success as we continue to await the US Supreme Court decision on that case.
Gold rallied on the news because a potential loss of Fed independence increases the risk of higher inflation in the future and a much weaker US Dollar. The probability of the loss of Fed independence remains very low as the consequences would be too big not only for the US but the global economy as a whole.
Tomorrow, the focus will turn to the US CPI report. We got a good NFP report on Friday, with the unemployment rate falling to 4.4%. A January Fed rate cut is now out of the question, but the market still sees two rate cuts by the end of the year with the first one expected in June. A hot inflation report might trigger a bit of a hawkish repricing and weigh on gold in the short term. On the other hand, soft data should keep on supporting the upside.
In the bigger picture, gold should remain in an uptrend as real yields will likely continue to fall amid the Fed’s dovish reaction function. But in the short term, a hawkish repricing in interest rate expectations could weigh on the market.
GOLD TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that gold rallied into a new all-time high today following the news of the DOJ subpoenaing the Federal Reserve. The price is now trading at the top trendline of a potential rising wedge. This is where we can expect the sellers to step in with a defined risk above the high to position for a drop into the bottom trendline. The buyers, on the other hand, will look for a break higher to increase the bullish bets into new record highs.
GOLD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can see more clearly the recent price action. Gold eventually bounced on the 4400 support zone and extended the rally into the 4600 level. From a risk management perspective, the buyers will have a better risk to reward setup around the minor upward trendline and the 4500 support. The sellers, on the other hand, will want to see the price breaking below the trendline to increase the bearish bets into the major bottom trendline.
GOLD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we can see that the price has already extended into the upper bound of the average daily range for today. In such instances, we can generally see some consolidation or a pullback. A break below the 4561 low will likely see the sellers piling in with more conviction to target a pullback to the 4500 support.
UPCOMING CATALYSTS
Tomorrow we have the US CPI report. On Wednesday, we get the November US Retail Sales and US PPI reports, so it’s going to be old data. We also have a potential US Supreme Court decision on Trump’s tariffs. On Thursday, we get the latest US Jobless Claims figures.
