Gold prices have surged as market sentiment shifts amidst political pressures, both from within the United States and across the Atlantic in Europe. With President Trump intensifying his push against the Federal Reserve and taking aim at central bank independence, gold bulls are back in force, seeking refuge in the yellow metal. The situation was further compounded by political turmoil in France, where a confidence vote has been called for President Macron, causing investors to flock to safe-haven assets. As the second-largest economy in the Eurozone, France's political uncertainty has added fuel to the fire, prompting a surge in demand for gold.
Trump's Influence Over the Fed Creates Growing Uncertainty
The political drama took a new turn yesterday when President Trump fired Fed Governor Lisa Cook, an unprecedented move that has raised alarms about the future of the U.S. central bank's independence. Cook, who has long pushed back against the notion of politically influenced monetary policy, swiftly responded, asserting that Trump had no authority to fire her. This marks a new level of tension, as investors now face the prospect of a Fed that is not free from political pressure.
Trump has long criticized Fed Chairman Jerome Powell, arguing that the central bank has not done enough to lower interest rates. The firing of Cook signals to the market that Trump is pushing aggressively to reshape the Fed to align with his economic agenda. While the market had already priced in the possibility of a 25 basis point rate cut in September, Trump's latest actions suggest that the President is unlikely to be satisfied with anything less than more drastic monetary policy adjustments.
There is a growing fear that the political influence over the Fed could lead to instability. The situation is further complicated by the fact that money markets are only pricing in a 50% chance that the Fed will cut rates again after September, signaling that the central bank's future policy direction remains unclear. With Trump's open disdain for Powell and his actions to get things started with Lisa Cook's firing, the market is concerned about the uncertainty that could follow. The next person in line could very well be Powell's successor, creating yet another wave of uncertainty. The market is now forced to reconsider whether the Fed will retain its independence or whether it will become increasingly influenced by political pressures, especially in the wake of Cook's dismissal.
Geopolitical Turmoil in France Adds to Safe-Haven Demand
While domestic political developments in the U.S. have triggered volatility, France's political instability is adding another layer of concern to global markets. French Prime Minister's confidence vote has sparked unease about the future of the second-largest economy in the Eurozone. Should this vote fail or further political chaos ensue, it could significantly impact the European economic outlook. As a result, investors have turned their attention to gold, traditionally seen as a safe-haven asset during periods of geopolitical uncertainty.
France's importance within the EU cannot be overstated, and its internal political struggles have prompted investors to seek refuge in gold. The Euro has come under pressure as a result, and the rising demand for gold has created a bullish environment. While investors have been cautious due to the U.S. political climate, France's woes have given them another reason to seek the stability of gold.
Technical Outlook: Symmetrical Triangle and Key Levels to Watch
Looking at the technical price action of gold, it appears that the precious metal is currently forming a symmetrical triangle pattern. This pattern typically indicates a period of consolidation before a breakout, suggesting that gold may experience a significant move once the price breaks either to the upside or downside. Symmetrical triangles reflect a balance between supply and demand, with price oscillating within a defined range.
The significance of this pattern lies in the fact that gold prices are nearing a breakout. Traders will be watching closely to see which direction the price moves as the pattern matures. A break to the upside could suggest that gold's bullish momentum is gaining strength, especially if the political and economic uncertainty continues. Conversely, a break to the downside could signal a short-term correction in the gold market, potentially triggering further sell-offs if the dollar strengthens or risk appetite increases.
From a technical perspective, immediate support is seen at $3,257, with a key resistance level at $3,439. These levels will be critical in determining the near-term direction of gold prices. A move above $3,439 could open the door for further gains, potentially testing the $3,500 mark. However, if the price fails to hold above support at $3,257, we could see gold retreat further, possibly testing lower levels around $3,200.
Gold chart by XTB
Conclusion: What's Next for Gold?
The market's current uncertainty surrounding the Fed's policy direction and President Trump's growing influence has brought gold back into focus as a safe-haven asset. As the political tensions in the U.S. and France continue to mount, gold's appeal as a store of value has grown stronger. Investors are keeping a close eye on the Fed's future actions, including potential rate cuts, and the possibility of further political interference, which could weigh heavily on gold prices in the short term.
The symmetrical triangle pattern suggests that gold is in a consolidation phase, awaiting a breakout. Key support at $3,257 and resistance at $3,439 will guide traders in the short term. If the geopolitical and economic uncertainty continues, gold could see significant upside, especially if the dollar weakens or if further shocks occur in global markets. For now, traders should remain cautious but attentive to key technical levels and market developments to navigate the complex landscape for gold in the coming weeks.