Gold & The Fed
How Political Pressure on U.S. Monetary Policy Historically Drives Gold Rallies
Gold’s Peak Price during the 1970s Inflationary Period
$850/oz
January 1980
The Core Dynamic
A historical pattern emerges when examining the relationship between the White House and the Federal Reserve. Perceived challenges to the Fed’s independence often lead to a loss of confidence in traditional assets, pushing investors towards gold as a safe haven.
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Political Pressure Increases
The White House publicly criticizes or attempts to influence Fed policy for political or economic goals.
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Gold Rallies
Markets perceive a risk to Fed independence, weakening the dollar and boosting gold’s appeal.
A Timeline of Influence
1951: Truman vs. McCabe ⛓️
President Truman pressured the Fed to keep interest rates low to finance the Korean War. While gold’s price was fixed under the Bretton Woods System, this conflict put the system under significant strain.
1965: Johnson vs. Martin ⛓️
President Johnson furiously objected to Fed Chair Martin raising rates to combat inflation. Martin held firm, but the pressure on the Bretton Woods system intensified.
1971-72: Nixon vs. Burns 📈
Nixon pressured Fed Chair Burns into an expansionary policy. This coincided with the collapse of the Bretton Woods system, triggering a historic bull run for gold.
1984: Reagan vs. Volcker 📉
The White House ordered Fed Chair Volcker not to raise rates before the election. Volcker ignored the directive, and his aggressive anti-inflationary policies signaled the end of the 1970s gold rally.
The 1970s Gold Explosion
The collapse of the Bretton Woods system and inflationary pressures in the 1970s led to an unprecedented surge in the price of gold, showcasing its role as a hedge against monetary instability.
Modern Risks & Future Outlook
A “Politicized Fed”
The HSBC report highlights that increasingly public and personal criticisms of the Fed could damage its reputation. A loss of confidence, even at the margins, could prompt outflows from US assets and into gold, even without actual policy changes.
Data Integrity Concerns
Events like the firing of the Bureau of Labor Statistics (BLS) Commissioner can create investor concern about the reliability of vital economic data. If investors doubt the data, they may turn to gold as a more tangible store of value.