"Sell-off of America" resurges! Powell under investigation triggers a triple rout in stocks, currency, and bonds, while gold prices soar past $4,620 to a record high.

The US Department of Justice has launched an investigation into Federal Reserve Chairman Jerome Powell, sparking market concerns over central bank independence. Surging risk aversion sentiment pushed spot gold to break through $4,620/oz at one point, setting a historic high with an intraday increase of 2.4%. The US dollar, US stock futures, and US bonds declined simultaneously, and "Sell America" trading sentiment re-emerged in the market.

On January 12, Bloomberg reported that this investigation is the latest offensive by the Trump administration against the Federal Reserve, previously involving attempts to dismiss board member Lisa Cook and repeated demands for aggressive rate cuts. The sensitive topic of Fed independence and its impact on US assets has again become the focus of investor debate.

According to the New York Times citing informed officials, the investigation was launched by the Columbia District Federal Prosecutor's Office, focusing on the Federal Reserve headquarters' $2.5 billion renovation project and whether Powell perjured himself to Congress regarding the scope of the project. Powell denied the allegations in a statement, saying "The threat of criminal charges is the consequence of the Fed insisting on setting interest rates based on the public interest rather than presidential preferences."

This escalation is prompting investors to reassess whether to reduce their risk exposure to US assets and the dollar. This risk-avoidance logic is reminiscent of the global trading theme when Trump announced comprehensive tariffs in April last year.

Safe Haven Assets Favored, Stocks, Bonds, and Dollar Fall Together

The current financial market is displaying a typical risk-averse trading pattern, with US stocks, bonds, and the dollar all under pressure, while funds flood into precious metals.

In terms of risk assets, US equity index futures fell collectively, with S&P 500 index futures down 0.5% and NASDAQ 100 futures down 0.7%. Selling pressure on long-term government bonds is significant, with the 10-year Treasury yield rising 3 basis points to 4.20%. The US dollar index fell by 0.4%, recording the biggest single-day drop in nearly three weeks.

Precious metal prices surged to new highs. Spot gold surpassed $4,620/oz, with an intraday gain of 2.44%, increasing by more than $300 since the beginning of the year; spot silver jumped 7% to a historic high of $85.24.

Several institutions believe that the driving force behind market turmoil is investors' repricing of the risk of Fed politicization. Gary Tan of Allspring Global Investments pointed out:

“Any development that raises doubts about the Fed's independence increases uncertainty in US monetary policy, which could strengthen dollar diversification trends and boost demand for traditional hedging tools such as gold.”

Fidelity International fund manager Mike Riddell added:

“History is repeating itself—political pressure on the Fed tends to mean a weaker dollar, rising long-term yields, and higher inflation expectations.”

John Woods, Chief Investment Officer Asia at Lombard Odier, stated:

“Gold is the number one geopolitical risk asset, surpassing any other class. The current geopolitical risks faced by the market are already excessive.”

Institutions Warn of Asset Allocation Shift

Investment institutions generally believe that this escalation will intensify market volatility and could have a profound impact on long-term monetary policy.

J.P. Morgan Asset Management noted that, based on more aggressive rate cut expectations, the US bond yield curve may steepen further, meaning long-term rates could rise more than short-term rates. Lombard Odier expects increased pressure on the dollar and US Treasury bonds.

David Chao of Invesco Asset Management said: “The Fed subpoena is yet another signof declining attractiveness for US assets.” European Central Bank Governing Council member Francois Villeroy de Galhau had previously warned that the Trump administration’s criticism of the Fed is threatening the global status of the dollar.

Kevin Thozet, a member of Carmignac’s investment committee, stated: “The risk is that the confrontation between the White House and the Fed will fully escalate in the coming quarters.” He warned the likelihood of a Fed chairman supported by Trump is rising, which could push up inflation expectations.

Investigation Focused on Renovation Cost Overruns

According to the New York Times, the federal prosecutor's office led by Trump's long-term ally Jeanine Pirro is investigating whether Powell misled Congress over the Fed headquarters renovation project. The project broke ground in 2022, is scheduled for completion in 2027, and is currently over budget by about $700 million.

The Fed explained that the overruns are due to rising costs for materials, equipment, and labor, as well as unexpected issues such as asbestos and soil contamination. The Fed noted that these two buildings have not undergone a comprehensive renovation in nearly a century.

At a congressional hearing last June, Powell denied claims in the 2021 proposal about private elevators, restaurants, and new marble facilities for senior decision-makers. He emphasized the project plan has "continued to evolve," and some originally included features have been eliminated.

In his latest statement, Powell said the Department of Justice has issued a grand jury subpoena to the Fed and threatened criminal prosecution regarding his congressional testimony. He said he would continue to perform his duties as confirmed by the Senate. Trump denied any involvement with the DOJ subpoena, saying, "I know nothing about it."

Fed Personnel Changes Imminent

This investigation coincides with the pending expiration of Powell’s term as Fed chair, which ends in May this year. Trump said last week that he has chosen a successor, who is expected to be announced soon. Trump's chief economic advisor Hassett is currently a frontrunner.

Although Powell's chairmanship ends in May, his term as a board member runs through January 2028. Powell has not disclosed whether he plans to remain at the central bank after this year.

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