Gold News: Gold Price Surges on Powell Investigation and Iran Tensions

Spot Gold Hits Record High Amid Powell Probe and Iran Tensions

Spot Gold (XAUUSD) is sharply higher on Monday after breaking out above $4550.15 and hitting a new record high at $4620.38. Fed rate cut expectations and geopolitical concerns regarding the escalation of events in Iran continue to underpin the market, but a fresh catalyst has entered the picture. Reuters reported Sunday that a criminal probe by the Trump administration into Federal Reserve Chair Jerome Powell has fueled new safe-haven buying.

At 15:02 GMT, XAUUSD is trading $4609.40, up $99.74 or +2.21%.

Dollar Weakness Amplifies Gold Rally

A sharp drop by the U.S. Dollar is also fueling the rally. Since the probe into Powell has essentially injected political risk into the already tense situation regarding the Fed’s independence, the situation is threatening stability in both the Treasury market and the dollar. The greenback fell the most in three weeks as tensions between the Fed and the Trump administration escalated.

Powell Responds to Administration Pressure

Powell also commented on the tensions between him and Trump. Reuters reported that he said the threat to indict him over Congressional testimony he gave last summer was a “pretext” for the Trump administration to gain more influence over interest rates, which the U.S. President wants cut dramatically.

Fed Rate Cut Expectations Shift After Jobs Report

Regarding Fed rate cut expectations, traders are betting on a 95% chance for the Fed to keep rates unchanged at its January meeting, according to the CME FedWatch tool, up from 86% before Friday’s jobs report.

Additionally, Goldman Sachs and Barclays, which had forecast cuts in March and June, now expect a 25 bps reduction in September and December, respectively, following the cut in June. Meanwhile, Morgan Stanley also revised its forecast on Friday to rate cuts in June and September from January and April. Finally, Wells Fargo and BofA Global Research both maintained their bets of March-June and June-July cuts, respectively, Reuters reported.

Labor Market Remains Key Variable

There is a lot of disparity regarding when the Fed will cut and how many times, but the common theme seems to be the state of the labor market. For example, according to Goldman, “If the labor market stabilizes as we expect, the FOMC will likely shift from risk management mode to normalization mode.” Bank of America added, “Mix of data is consistent with our view that breakeven job growth might be falling (labor supply shock) even faster than the Fed will concede.”

Both Goldman and BoA agree the labor market is the key driver of Fed timing, but Goldman thinks the labor market is holding steady and that Fed cuts follow stabilization. BofA thinks the labor market is weakening more rapidly, which could justify earlier or more cuts than the Fed currently signals.

Conclusion

With the mixed opinions about the strength of the labor market and timing of Fed rate cuts, we conclude that geopolitics is the main driver of today’s strength, with Fed rate cuts providing support. Traders are also reacting to the Powell investigation news, but they’re looking for more details.

More Information in our Economic Calendar.