The Driving Force Behind Gold's "New All-Time High": Trump Wants to Make the Fed and the Dollar Obey

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Amid shaken confidence in U.S. dollar assets and mounting inflation risks, gold has become one of the hottest assets this year.

This week, gold prices have surpassed $3,500 per ounce, reaching a new historic high. The market broadly bets that the Federal Reserve will soon start cutting interest rates, further fueling a “gold buying frenzy” driven by robust central bank purchases and deepening worries about the global economy.

After adjusting for inflation, this round of gold prices is approaching highs not seen since the 1980s.

This surge coincides with a series of tariff policies introduced by Trump, as well as his unprecedented actions to influence Federal Reserve decisions. These moves have led to a weaker dollar and lower short-term Treasury yields, aligning with Trump’s aim to stimulate corporate and consumer spending and reduce the burden of U.S. debt repayments.

Some analysts point out that as Trump seeks to make the Fed and even the dollar serve his intentions, expectations are rising that gold's relative appeal will continue to grow, with investors regarding Trump’s intervention in the Fed as the core logic driving gold prices up.

Fed’s “independence” damaged, becomes eye of the storm

Trump’s pressure on the Fed has become a focal point for the markets.

As the core institution of the U.S. economy and even global financial markets, the Fed’s independence is being challenged. And investors increasingly believe that Trump's ongoing pressure on the Fed's independence will provide new and powerful support for a record-breaking gold rally.

Trump has not only attempted to remove Fed governor Cook, but has repeatedly accused Chairman Powell and other policymakers of cutting rates too slowly. Furthermore, he plans to shape a potentially more “compliant” central bank by nominating a new chair.

Johan Jooste, CEO of Pangaea Wealth AG, said:

“Policy volatility is off the charts, and especially coming from the White House. Whether intentional or not, these policies seem to be weakening the dollar, which is favorable for gold.”

Given decades of experience showing that when interest rates are set by an independent central bank, inflation remains low and economic growth is more stable, some investors are increasingly inclined to bet that Trump’s “attack” on the Fed will lead the U.S. economy onto a gloomier path.

The dollar as a “pressure valve,” gold returns to historical logic

For investors bullish on gold, the most favorable scenario is: the Fed being forced to cut rates amid rising inflation, causing the dollar to plunge.

Currency depreciation and rising price pressures could quickly erode returns from U.S. Treasuries, just as the government is preparing to ramp up borrowing. This would greatly enhance the appeal of alternative safe haven assets like gold.

Shaniel Ramjee, co-head of multi-asset at Pictet Asset Management in London, said:

“The dollar will act as the ‘pressure valve’ for the current administration’s policy ambitions.”

He believes that gold is “a tool to guard against a weakening currency, or against policies specifically made to weaken the dollar.”

This scenario played out in the 1970s. Then-President Nixon pressured the Fed to keep rates low amid inflation risks, causing the dollar to depreciate sharply and triggering a 300% super rally in gold.

Markets bet on rate cuts, front-end yields fall

Currently, market sentiment seems far from panic, but bets on rate cuts have risen significantly. As the Fed’s September 16-17 meeting approaches, traders have raised bets on a 25-basis-point cut.

Market reactions are directly reflected in bond yields. Short-term U.S. Treasury yields have recently fallen to a four-month low—the so-called “front end” yield is declining, and along with a weaker dollar, this supports non-interest-bearing gold denominated in dollars.

Meanwhile, 30-year Treasury yields remain stubbornly high, reflecting investors’ bets that an early and aggressive rate-cutting cycle could stoke inflation, erode faith in the central bank, and trigger a large-scale shift of funds from Treasuries into other defensive investments such as gold.

Alexandre Carrier, portfolio manager at DNCA Invest Strategic Resources Funds, said:

“In the past, the safe haven was U.S. dollar assets, but now they look increasingly unsafe. By default, gold appears to be one of the last safe havens.”

Wall Street remains bullish, room for increased holdings

Currently, Wall Street is generally optimistic about gold’s future performance.

UBS raised its gold price target last month, saying the precious metal is “back to its peak”; Citi also raised its near-term outlook, partly due to a worsening outlook for the U.S. economy; Goldman Sachs is also bullish, citing strong central bank demand and diversification away from the dollar as key support.

Rajeev De Mello, global macro portfolio manager at GAMA Asset Management SA, expects gold could reach $4,000 by the end of 2026:

“My view has shifted significantly and I have become more bullish on gold, mainly because of the loss of Fed independence.”

Despite gold prices being at high levels, investors still seem to have room to increase their holdings. According to Bloomberg data, investor allocations to gold ETFs are still below the peaks seen during the 2020 pandemic and the outbreak of the Russia-Ukraine conflict in 2022.

In addition, CFTC data shows that speculators’ bullish positions are also below historical highs. This suggests that if the trend of funds shifting from U.S. Treasuries to gold intensifies, there is still plenty of room in the market for more investors.

Pangaea Wealth’s Jooste summed up:

“As a value investor, U.S. government bonds look extremely bad. When you are negative on bonds, you need an alternative.”

Risk Disclosure and DisclaimerThe market carries risks, and investments require caution. This article does not constitute personal investment advice and does not take into account individual users’ particular investment objectives, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their specific situations. Investment decisions made accordingly are at one’s own risk. ```