Warsh as Fed chair likely less loyal to Trump, but not more hawkish, and no worse for gold – Analyst reactions

Nguyen was asked by Bloomberg TV on Friday morning whether the likely confirmation of Warsh – seen as a less dovish choice than earlier frontrunner Kevin Hassett – changes her projections for the yellow metal’s performance this year.

“I wouldn't say so… not yet,” she said. “And I wouldn't necessarily call the new Fed chair more hawkish if it were to become Kevin Warsh.”

Nguyen said the main differentiator between Warsh and the other potential candidates is the degree of perceived loyalty to the president.

“Markets are doubting whether Warsh will be as loyal as someone like Kevin Hassett, who has been a loyalist for quite some time,” she said. “With respect to Trump, I think Trump has made relatively clear what he wants from a new Fed chair. And if that Fed chair doesn't deliver, the attacks on the Fed are unlikely to subside. So this whole issue won't disappear even if Kevin Warsh, who's seen as more hawkish […] would replace Powell.”

Nguyen was then asked if she believes the U.S. dollar debasement trade would continue under Warsh, and whether she would be buying the dip in gold and silver after Thursday’s dramatic selloff.

“With current market dynamics, it's very difficult to make a forecast here,” she said. “But what we've seen in the recent past is that when we saw a correction downward, this was often enough taken as an opportunity by the markets to enter new long positions, and usually the correction didn't last long.”

In a Friday report, Nguyen expanded on her analysis of the Warsh nomination and its impact on the precious metals complex.

“Warsh was previously a FOMC governor and is therefore considered an experienced and more serious choice,” she said. “However, we would be cautious about reading too much into this. The US president has made it sufficiently clear that he wants to see significantly lower interest rates. He is unlikely to abandon this position any time soon. This in turn means that the attacks on the Fed would probably continue under a Fed Chair Warsh if he did not deliver as Trump expects.”

Nguyen said this means there is a “high probability that the central bank will yield to pressure to at least some extent and cut interest rates more than is currently priced in by the market.”

“This suggests that the gold price will remain well supported,” she concluded. “The extent of the correction also suggests that market participants were simply waiting for an opportunity to take profits after the rapid price rise.”

Eric Teal, Chief Investment Officer for Comerica Wealth Management (Charlotte, NC), told Kitco News that the Warsh selection should calm concerns about the erosion of independence of the Federal Reserve.

“His candidacy included prior experience as a Fed Governor and as an investor,” Teal said. “He has been flexible on monetary policy in the past and will likely take the most strategic approach toward the role of the Federal Reserve mission going forward. Further deregulation, reducing the balance sheet, and additional rate cuts if inflation continues to moderate should be stimulative for the economy and markets, including more value-oriented sectors of the market in the intermediate term.”

Chris Zaccarelli, Chief Investment Officer for Northlight Asset Management, told Kitco News that while markets are relieved by Warsh’s nomination, they are also likely concerned that he won’t be as dovish as they were hoping.

“Like all other Fed Chair appointees, it will take some time for him to find his footing and establish his reputation as chair, but in the past we have seen a number of examples where Fed Chairmen – and Supreme Court justices for that matter – end up having a different legacy and style than people (and the Presidents that appointed them) had expected,” he said. “At the end of the day, so much of financial markets – and even the economy – are built on confidence and the most important thing Kevin Warsh can do in his new role is maintain (and if possible, improve) the confidence that investors have in the institution of the Federal Reserve Bank.”

Spot gold slid all the way to $4,941.50 per ounce in overnight trading, and one hour into the North American session the yellow metal was trading at $5,037.43 for a loss of 6.20% on the daily chart.