Can Trump fire Powell? Is gold price going to soar even more?
The escalating tensions between President Trump and Federal Reserve Chair Jerome Powell have taken center stage in the financial markets, creating a perfect storm that gold investors should monitor closely. What started as public criticism has evolved into explicit calls for Powell's removal, with significant implications for monetary policy, inflation, and ultimately, precious metals prices.
The Current Standoff
President Trump has ramped up pressure on the Federal Reserve, demanding immediate interest rate cuts while simultaneously implementing tariffs that create precisely the inflationary pressures that would prevent such cuts. The contradiction is stark: Trump wants lower rates to stimulate economic growth, but his sweeping tariff policy is all but guaranteeing higher inflation.
In his recent comments, Powell didn't mince words, stating the Fed faces a "highly uncertain outlook with elevated risks of both higher unemployment and higher inflation" due to tariffs that were "larger than expected". He emphasized that these dual pressures create tension between the Fed's mandates of stable prices and maximum employment.
Unprecedented Tariff Escalation
The magnitude of Trump's tariff policy cannot be overstated. What began as targeted measures has mushroomed into a global trade war with China at its epicenter. Chinese imports now face tariffs of up to 145%, with China retaliating by imposing 125% tariffs on U.S. goods.
This mutual escalation has had predictable effects on markets, with major indices experiencing significant volatility. The impact of these trade tensions extends beyond just stocks – they're reshaping global economic relationships and increasing the probability of a recession.
In my opinion, the world economies will be hit HARD. It’s just like what we had at the beginning of the 2008 sell-off or at the beginning of the Covid pandemic. It’s obvious that the implications will be severe, but they are not, so the vast majority of investors are kind of pretending that it’s not happening. But they will catch up.
The Powell Predicament
Powell finds himself in an increasingly difficult position. With inflation already above the Fed's 2% target, cutting rates would risk further price increases. Yet failing to cut rates risks incurring more of Trump's wrath, with the president even suggesting Powell's "termination cannot come fast enough" while labeling him as "always TOO LATE AND WRONG".
The legal question of whether Trump can actually remove Powell remains unresolved, but the pressure itself creates market uncertainty. This uncertainty typically benefits gold as a safe-haven asset, as investors seek stability amid political and economic turbulence.
Stagflation Risk Rises
What's particularly concerning for the broader economy – but potentially bullish for gold – is the growing risk of stagflation. This toxic combination of slowing growth and rising inflation puts the Fed in a nearly impossible position.
Powell himself acknowledged this difficulty, noting that the Fed may "find ourselves in the challenging scenario in which our dual-mandate goals are in tension" as tariffs simultaneously push up inflation while slowing economic growth. This economic environment mirrors the 1970s, a period when gold performed exceptionally well (still, gold didn’t soar in a straight line - there was a huge decline in the middle of the 70s).
Gold's Anticipated Rally Has Already Materialized
While the fundamental backdrop described above would typically be considered bullish for gold, the market has already responded dramatically. In fact, gold has not just rallied – it has soared to unprecedented heights in one of the most aggressive moves in recent history.
Gold's Historic Rally
Gold's performance in 2025 has been nothing short of extraordinary. According to the latest data, gold prices have increased by over 32% since the beginning of the year and continue reaching new record highs. Just yesterday, gold surged to $3,453.70, setting yet another all-time high as the dollar weakened significantly. Overnight futures even touched $3,509.06.
This remarkable rally has been fueled by multiple factors, but the tariff-related uncertainties and Powell-Trump tensions have been front and center.
The Case for a Top
Given the extent of the move, there are several compelling reasons to think gold may be approaching a significant top:
1. Excessive Price Moves
The pace of gold's ascent has become increasingly unsustainable. These much bigger daily price moves in gold serve as a clue this very mature bull market run is close to climaxing. This type of accelerated price action (a.k.a. a parabola) often precedes major reversals in bull markets.
2. Extreme Sentiment
When analyzing market sentiment indicators, we're seeing classic signs of excessive optimism. Investment banks are rapidly raising their price targets. This type of target-chasing often occurs near market peaks.
3. Market Has Likely Already Discounted Uncertainties
Markets are forward-looking by nature. The current gold price has likely already incorporated:
· The full impact of Trump's tariffs (now at 145% for Chinese goods)
· The strained relationship between Trump and Powell
· The possibility of Powell's removal
· The potential for higher inflation due to tariffs
· The increased likelihood of a global recession
When everyone expects an asset to move in one direction (in this case, higher for gold), there's often no one left to buy at higher prices.
4. Technical Signs of Exhaustion
From a technical analysis perspective, gold is showing signs of buying exhaustion. The metal has become extremely overbought on momentum indicators, suggesting at minimum a period of consolidation or correction is due.
After invalidating the move above $3,500, gold declined back to its second of the very short-term support lines. The third one is at about $3,400. Based on the “three line break” technique, if gold breaks below $3,400 here, it will imply that the final top is indeed in. Given how extremely overbought gold has become, this appears to be the likely outcome (especially that neither silver, nor miners are really following gold higher here – at least they lagged significantly yesterday).
The "Buy the Rumor, Sell the News" Effect
Financial markets often follow the "buy the rumor, sell the news" principle. In this case, gold has been rising on speculation about how tariffs and Fed policy might play out. Now that these situations are materializing, traders who bought on anticipation may begin selling on confirmation.
This effect is particularly pronounced when an asset has experienced a parabolic move like we've seen in gold. The overnight futures high of $3,509.06 could represent the crescendo of this buying frenzy.
Contrarian Considerations
From a contrarian perspective, when everyone appears to be bullish on an asset, it's often wise to consider the opposite possibility. The fact that most analysts are raising price targets, and few are suggesting caution is itself a warning sign.
Moreover, gold's outperformance relative to silver and mining stocks suggests smart money may already be reducing exposure to the precious metals complex.
Near-Term Outlook
Given these factors, a near-term correction in gold prices appears increasingly likely. Markets rarely move in straight lines, and even the strongest bull markets experience significant pullbacks. After such a dramatic rise, a 5-10% correction would be entirely normal and potentially healthy for the longer-term trend.
However, if we’re about to get a 2008-like slide in stocks, then gold, silver, and mining stocks could be affected to a much greater extent. In particular, silver and miners would be likely to get a major hit.
The tensions between Trump and Powell are unlikely to dissipate soon, but markets may have already factored in the worst-case scenarios. As concrete policies emerge and uncertainty decreases, gold might paradoxically lose some of its appeal as a safe haven.
Investment Implications
For investors currently holding substantial gold positions, this may be an opportune time to:
1. Consider taking partial profits, especially if gold represents an outsized portion of your portfolio
2. Implement tighter stop-loss orders to protect gains
3. Be prepared for increased volatility in both directions
4. Look for signs of exhaustion in the gold market
5. Short parts of the precious metals market (and selected assets from the commodity sector) that are particularly vulnerable to a sell-off (hint: gold is not one of them in my view)
For those looking to establish new positions, patience may be rewarded with better entry points in the coming weeks or months.
Conclusion
While the fundamental backdrop of the Trump-Powell standoff creates conditions typically supportive for gold, the extraordinary price action suggests that these factors have not only been priced in but may have led to excessive speculation. The overnight high of $3,509.06 may well represent a significant peak or at least signal that gold is entering a phase of consolidation.
Markets often overshoot in both directions, and gold appears to have moved from under-appreciation to potential over-valuation in a remarkably short period. The combination of extreme bullish sentiment, parabolic price movement, and technical exhaustion signals suggests caution is warranted despite the seemingly bullish fundamental backdrop.
As always, maintaining discipline and avoiding emotional decision-making will be crucial for navigating what could be a volatile period ahead for precious metals.
Technical Scream from World Stock Indices
Before wrapping it up for today, I’d like to show you the chart featuring world stocks. What’s happening in them provides an even clearer indication of what’s likely next for the stock markets around the world – including U.S. stocks and including mining stocks.
What we see now is almost identical as what we saw in 2008 right after the stock market topped – from very similar nominal price levels.
Stocks plunged at first, and RSI almost reached the 30 level. Then we saw a rebound that erased about 61.8% of the decline and RSI jumped above 50. This is exactly what happened in 2008 before the slide, and this is exactly what we see now.
Remember the paragraph that I put in bold earlier in this analysis? Let me quote it:
“In my opinion, the world economies will be hit HARD. It’s just like what we had at the beginning of the 2008 sell-off or at the beginning of the Covid pandemic. It’s obvious that the implications will be severe, but they are not, so the vast majority of investors are kind of pretending that it’s not happening. But they will catch up.”
2008 and now are not only fundamentally aligned – we even see very similar technical patterns in world stocks!
And if that wasn’t enough, please take a look at the middle and lower part of the above chart. The size of the rally that we saw in the XAU Index (proxy for gold stocks and silver stocks) from that took XAU to its 2008 top is almost identical to the size of the current rally in it!
On top of that, we have the same kind of sentiment for the USD Index now as we had in 2008 – it’s universally hated.
Buying when there’s blood on the streets, remember?
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Thank you.
Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief