Concerns over US Fed’s independence also keeping gold prices high

Refinery services provider Heraeus says the latest gold price increase followed after US President Donald Trump complained about the Federal Reserve (Fed) not cutting rates at various points last year and criticised reserve chairperson Jerome Powell.

This led to concerns over the central bank’s independence as Powell’s term as chairperson ends in May and Trump could nominate someone whose thinking is more in line with his own.

Heraeus explains that the US Department of Justice has served the Fed with subpoenas, threatening a criminal indictment regarding Powell’s testimony to

Congress and the spending on renovation work at the reserve’s headquarters.

This further stokes concerns over the independence of the US Fed.

If the eventual result is that the reserve keeps interest rates lower than might otherwise be the case, that could weaken the dollar and also lead to negative real interest rate conditions – which are usually supportive of a higher gold price.

As the gold price hits new hights it has once again become overbought.

However, the price is showing a divergence from the Relative Strength Index reading. Heraeus says divergencies can persist for some time, which has been the case since October last year, but it does indicate that upward price momentum is easing.

“This looks similar to the situation from February to April last year which was then followed by four months of sideways trading,” Heraeus states.

In respect of silver, which closed the week of January 16 at a price of $88.82/oz, stocks have dropped to about 435-million ounces – marking a 14-million ounce drop since the start of the year.

With Comex silver inventories having reduced last week, it helped to ease some of the recent strain in other markets such as London, Heraeus explains.

Even so, prices kept moving higher last week.

“The rally appears to be driven by the same forces that are lifting gold, including heightened geopolitical risk and growing questions about the Federal Reserve’s independence.”

Heraeus adds that silver price premiums in Shanghai hit a record $13/oz over London loco spot prices last week, with local spot prices climbing to an all-time high of $105/oz.

Inventories on Chinese exchanges have fallen to multi-year lows with industrial users and investors competing for physical metal.

On warrant stocks at the Shanghai Futures Exchange stood at 626-million ounces last week, which was 51% lower year-on-year as metal has been withdrawn to address physical tightness in other markets, including London and India.

Meanwhile, while platinum prices reached $2 450/oz for a third time last week, they failed to push to a new high. Heraeus says the platinum price seems to be forming a triangle pattern which could be followed by a breakout to new highs.

The palladium price, which closed at $1 779/oz on January 16, has not trended as strongly upward as platinum, but should platinum move higher, palladium will likely follow suit.

Heraeus further reports that ruthenium prices have held steady since reaching a record high of $1 520/oz, while rhodium and iridium prices have increased to $10 550/oz and $6 500/oz, respectively. Iridium prices are currently at its highest levels since June 2021.

Small platinum group metals are clearly not immune from the broader community bull cycle, with prices now moving faster than the underlying fundamentals.

“While sentiment in the hydrogen sector appears to be improving, led by developments in China, the pace and scale of the recent rally are difficult to reconcile with this shift and are not consistent with the level of demand typically seen from industrial end-users,” Heraeus says.