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11ukM

London Quick Take – 12 Jan - Gold jumps to fresh record on Fed independence fears & Iran military intervention talk, Barclays dips on credit card interest move

Equities 3 minutes to read
Neil Wilson
Neil Wilson

Investor Content Strategist

Note: This is marketing material. This article is not investment advice, capital is at risk.

Gold rallied to fresh record highs as the US launched a criminal investigation into Federal Reserve chair Jay Powell, whilst white hot geopolitics amid talk of US military strikes on Iran added to the broadly risk-off tone. Gold rose 2% to a record $4,600 and silver hit a fresh high above $84, while the US dollar fell as traders bet against the US currency due to concerns about the future of the Fed. European stock markets were marginally weaker but the overpowering 2026 narrative continues so mining stocks and defence names rose. On the FTSE 100 precious metals miner Fresnillo added more than 4.5%, while BAE Systems rose 3%.

Federal chair Powell said the Fed has been hit with Justice Department grand jury subpoenas threatening criminal charges linked to his June testimony on the Fed’s headquarters renovation. Powell hit back, saying the investigation has nothing to do with the renovation and everything to do with the Fed not bowing down to President Trump on rates.

I’d agree with Powell. This is truly unprecedented. You could call it vindictive by Trump, seeing as Powell is leaving in May anyway. But really this is about Trump making it clear to who comes next as Fed chair and to existing policymakers on the FOMC that the White House will set interest rates. It's clear there is a large camp within the administration pushing to end Fed independence. As I said last year, we have already entered an era of fiscal dominance – where the central bank is just a tool of the Treasury and the politicians. All this uncertainty around the Fed is negative for USD and Treasuries and plays into our 4D trade narrative – debt debasement and dollar devaluation. Investors don’t like the interference and they will need to price higher inflation, higher fiscal and monetary policy risk, increased economic policy uncertainty etc - more that's good for gold. The Fed remains independent for now but its independence is being eroded.

Meanwhile, Trump says he is considering military intervention in Iran as hundreds are killed in a wave of anti-government protests. Adding some extra spice to the geopolitics US Secretary of State Marco Rubio is due to meet Danish officials this week to discuss the future of Greenland. Britain and Nato allies are scrambling to boost their Arctic presence to fend off Trump's push for the island.

US job growth slowed further in December, with payrolls rising by 50,000, below both November’s revised 56,000 and the 60,000 forecast, but unemployment rate declined to 4.4% from 4.6% in November. Remember the breakeven rate for jobs is now around 30,000-80,000...does the Fed really need to cut again? I'm not sure but it's a brave committee that holds fire in this environment.

All three major US indices rallied last week and the S&P 500 and Dow Jones notched fresh record closing highs, though futures are trading down this morning.

Barclays fell 4% after Trump announced a one-year cap to limit credit card interest rates to 10% this week. Yet more intervention in the US economy as Trump has his eyes on the mid-term elections later this year. Also likely negative for Visa, Mastercard, Capital One and American Express.


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and
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