Trouble at the Fed supports gold and silver

Key Points:

• Governance shock: Trump’s attempted removal of Fed Governor Lisa Cook raises a Fed independence risk premium; markets for now are recalibrating, not panicking.
• Dollar watch: Near term USD strength is plausible on safe haven demand and euro downside as France’s government wobbles; a headwind for bullion in USD terms, a tailwind in EUR terms.
• Metals bias: Policy uncertainty, steady official sector gold demand, and a structurally tight silver balance keep a bullish skew with few clear roads to lower prices at this point.
• Near term catalysts: Friday’s core PCE and any movement on a potential Cook replacement will decide if today’s repricing sticks.

Investment metals: Governance risk meets hard asset demand

President Trump’s attempted—and legally contested—removal of Fed Governor Lisa Cook is less about an individual and more about the institution. Whatever the legal outcome, the signal is clear: political pressure on the central bank is rising, and it may over time introduce an “independence premium” into U.S. assets—supportive for gold in particular—because investors hedge governance risk with real assets. The initial reaction has been a cautious recalibration rather than a panic: gold firmed, front end yields wobbled lower on earlier cut chatter, while risk assets lost some altitude.

From here, two short-term paths matter for direction and durability. First, personnel: If legal challenges fail and a replacement arrives with a dovish profile, front end yields could slip on earlier cut expectations, while the longer end faces the risk of a steeper curve if credibility concerns and inflation concerns intensity.  Second, data: Friday’s core PCE will either validate the “cuts sooner” narrative or push back against it. Either way, the episodes with Cook and ongoing verbal attacks on Fed Chair Powell have brought Fed independence into sharper focus for global investors.

The Dollar, the Euro and why bullion can still rally

Near term USD direction is two handed. The headlines initially softened the greenback, but the broader setup and current policy uncertainty tends to attract safe haven flows, and Europe adds its own stress that may see the Euro, which remains the biggest speculative long against the dollar, suffer from renewed political stress in  France, where Prime Minister Bayrou has called a confidence vote that may topple the government as soon as next month.

For bullion, a firmer dollar is usually a headwind in USD terms, but two offsets matter. First, a heavy euro means higher local currency metal prices in the euro area, which supports regional investment demand. Second, when dollar strength is driven by uncertainty rather than superior growth, gold often holds up better because the very source of the bid—the search for safety—also supports the metal. Put simply: governance risk can leave gold resilient even during USD upswings.

Gold: The primary hedge

Tactical: The immediate setup favors gold on three counts—(1) policy uncertainty, (2) the prospect of an earlier cutting cycle if personnel shifts lean dovish, and (3) demand from investors hedging institutional risk. Any short lived dollar spikes on safe haven flows may in our opinion translate into consolidation rather than trend reversal, provided the Federal Reserve stays on the expected course towards lower rates, and with that lower funding costs for holding non-yielding assets such as bullion and silver.

Structural: Official sector buying remains the quiet backbone of the market, and reserve managers have, in recent years, increased allocations for diversification and sanctions resilience motives. That steady bid has for the past three years prevented gold from suffering major setbacks during periods of adverse dollar and rate movements. Investor flows have been more stop start, but the “why allocate” case has broadened from inflation hedging to institutional hedging, which is less sensitive to monthly prints and more tied to regime perception. The increased focus on incoming US rate cuts and with that lower opportunity costs have triggered a renewed demand for bullion-backed ETF investments, with total holdings recently hitting a two-year high.

Risk management lens: The bear case requires several things at once: a firm legal block that decisively lowers governance risk; upside inflation surprises that halts rate cut speuculation and push real yields materially higher without denting risk assets; and a visible throttling back of central bank purchases. That combination, again in our opinium, looks like a tall order in the very short run.

Gold (+27.5% YTD) has spent the last three months consolidating earlier strong gains, leading to sideways trading confined to a narrowing range pivoting around USD 3,350. For that to change, a break above USD 3,450 is needed, while a break below USD 3,250 may signal an extended period of consolidation.