Gold jumps to a new all-time high as the DOJ seeks a pretext to fire Fed Chair Powell

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.