Yesterday, markets started to speculate that Fed Governor Jerome Powell could replace Chair Janet Yellen. What does it mean for the gold market?
Yellen’s term expires in February. Her two predecessors served two terms, despite the changes in the White House. Actually, most presidents renominated the sitting Fed Chair upon taking office. However, Trump may not follow that tradition and appoint a new Chair. At the end of September, he began meetings with potential Chairs. He talked with a few candidates: Kevin Warsh, Jerome Powell, Janet Yellen and Gary Cohn.
Until recently, Warsh was believed to have the highest chances to serve as the Fed Chair. The former governor is considered as more hawkish than Yellen. However, after Politico’s article, investors started to include the current Fed governor in the race for the post. Before working for the Fed, Powell worked at private equity firm Carlyle Group and in the U.S. Treasury under President George H. W. Bush. As he is considered less hawkish than Warsh (Powell has been a reliable ally of Yellen on monetary policy), his increased odds pushed the U.S. dollar down, while supporting gold prices, as one can see in the chart below.
Chart 1: Gold prices over the last three days.
Actually, Politico reported that Powell is favored by Treasury Secretary Steven Mnuchin. According to recent trading at PredictIt, Powell is now the second-most likely candidate, after Warsh, but before Taylor, Cohn, Yellen, and others. And he was not even in the betting pool until late last week!
The take-home message is that Jerome Powell, the current Fed Governor became the dark horse in the race. As he is considered to be more dovish than his main rival Kevin Warsh, the U.S. dollar retreated, while the price of gold rose. Hence, the speculations about the next Fed Chair could importantly affect the gold market in the upcoming days.