Gold News

Gold Gains Under Powell Fed: How Much, Not If

That is history's view at least...
 
GOLD PRICE up, stock market down, writes Adrian Ash at BullionVault.
 
It hardly makes an auspicious first day for Jerome Powell's tenure as chairman of the US Federal Reserve.
 
Whether the legal scholar and former Fed governor can save the stock market after its near record-breaking run, who can say?
 
But as he's sworn in as chief of the world's single most influential central bank today, the question history asks about gold is not whether the metal will rise under Chairman Powell, but by how much.
 
Because whatever success he can make of the job, gold hasn’t fallen under any Fed chair since William Martin’s time.
 
Gold price gains under the last 7 US Fed chairs. Source: BullionVault
 
Back then of course, from 1951 to 1970, the gold price was literally fixed in Dollar terms.
 
Maintaining that price of $35 per ounce – sometimes buying from the open market to buoy prices, but more often selling to put a lid on gold – took more effort than any Fed chair would throw at targeting the gold price until Paul Volcker stepped up a decade later.
 
"Letting gold go to $850 per ounce was a mistake," the famously tall and infamously high-rate Fed chair has since said of gold's spike into 1980.
 
"We had to deal with inflation. There was a kind of great speculative pressure...Everybody wanted to buy collectibles...Other markets of real things were booming." 
 
Boo to speculation! Yet it only gave shape to the outcome of weak monetary policy amid massive deficit spending. The world needed Volcker's bitter medicine of double-digit interest rates to wring inflation out of the system at last.
 
Which will it prove under the new Powell Fed? Interest rates behind the curve, like the 1970s and 2000s...or positive and rising returns to cash, such as savers enjoyed during the 1980s and '90s?
 
Either way, with a freely floating gold price, no Fed chair in almost a half-century – not even Paul Volcker – has managed to curb or cut the gold price during their tenure.
 
Always a first time, I guess. But not with a stock market priced for perfection to defend.

Adrian Ash is director of research at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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