Markets were jolted late after news broke that the US Department of Justice had served grand jury subpoenas to the Federal Reserve over renovations at its headquarters. Jerome Powell responded with a terse statement, rejecting the allegations outright and calling them a “pretext” rooted in dissatisfaction with the Fed’s interest-rate policy.
Markets did not wait for clarification. The dollar weakened, US Treasuries sold off, equities wobbled, and the yield curve steepened. Precious metals, meanwhile, did what they tend to do when confidence cracks, they surged. Gold and silver jumped while platinum, palladium, copper, and aluminum chased higher prices.
I will admit it. Our precious metals positions in some models have shot up, catching me slightly by surprise. Just the other day at a Christmas gathering, a couple of friends complained about how expensive gold has become. I suggested only half-jokingly that they grab some before it gets even more expensive. They were not amused.
If I had zero experience risk-managing trades, I would probably be having a panic attack too. As for me, I do not really care about the latest Fed drama. I care about positioning, risk, and whether portfolios are doing what they are supposed to do.
At this point, being bearish on gold amounts to standing in front of a super-powered freight train. Volatility is inevitable, pullbacks will happen, but the direction of travel is hard to ignore.
Regardless of how this investigation ends, Powell will step down in May. The next Fed chair certainly will not be me. Judging by markets, I’m not entirely sure that “not” being the next Fed chair is a bad thing for me.