Gold rallies to two-week high on Cook's dismissal crisis

Gold prices jumped in the European market on Tuesday to a two-week high, resuming gains after a temporary pause yesterday, moving close to trading above the psychological barrier of 3,400 dollars an ounce, supported by the current decline in the US dollar against a basket of global currencies.

US President Donald Trump announced the dismissal of Federal Reserve board member Lisa Cook over mortgage-related misconduct, in an unprecedented move that undermines confidence in the central bank’s independence and US assets.

Price Overview

Gold rose by 0.6% to 3,386.62 dollars, the highest since August 11, from the opening level of 3,365.95 dollars, recording a low of 3,351.42 dollars.

At Monday’s settlement, gold lost about 0.2% in a breather after strong gains late last week.

US Dollar

The dollar index fell on Tuesday by 0.35%, resuming losses after a temporary pause yesterday, moving once again near multi-week lows, reflecting renewed weakness of the US currency against a basket of major and minor peers.

The decline came amid accelerated selling after President Donald Trump announced the dismissal of a Federal Reserve board member, in an unprecedented move undermining the Fed’s independence and US assets.

Dismissal of Lisa Cook

President Donald Trump announced late Monday the dismissal of Lisa Cook from the Federal Reserve Board, citing allegations of mortgage-related misconduct.

Cook, the first African-American woman to serve as a Fed governor, had been set to remain in office until 2038.

Trump, who lacks the legal authority to dismiss Fed board members except “for cause,” backed away from his threat to fire Fed Chair Jerome Powell, whose term expires next May.

Cook’s departure could accelerate the president’s reshaping of the Federal Reserve Board and the Federal Open Market Committee (FOMC), which sets interest rates.

For her part, Lisa Cook said: Trump has no authority to dismiss me and I will continue to perform my duties. She added: there is no justification for dismissal and I will not resign.

Legally, Trump’s dismissal of Cook can be challenged in federal courts, and ultimately in the Supreme Court.

Congress had restricted the president’s unilateral authority to dismiss Fed governors under the Federal Reserve Act of 1913, which stipulates that the president may only do so “for cause.”

US Interest Rates

According to CME Group’s FedWatch tool: the pricing of a 25-basis-point US rate cut in September is currently steady at 85%, with the probability of holding rates unchanged at 15%.

The pricing of a 25-basis-point cut in October is steady at 92%, with the probability of no change at 8%.

To reprice these expectations, investors this week await important US economic data, particularly the Personal Consumption Expenditures report on Friday, along with a series of comments from Fed officials.

Outlook for Gold

Tim Waterer, chief market analyst at KCM Trade, said: Trump once again unsettled traders with his remarks regarding Fed member Cook, leading to additional safe-haven flows into gold today.

He added: there is a sense that Trump may reshape the Fed to become more inclined toward quantitative easing, and any decline in the dollar or in bond yields will likely impact gold.

SPDR Fund

Gold holdings at SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose yesterday by 1.72 metric tons to 958.49 metric tons, rebounding from 956.77 metric tons, the lowest since August 6.