The Supposedly Hawkish Warsh: Gold Price Analysis

The massive selloff in precious metals last Friday actually got its start Thursday evening when news broke that President Trump intends to nominate Kevin Warsh to succeed Jerry Powell as head of the Fed. It has been assumed that Warsh will act as some sort of "inflation hawk" and raise interest rates beyond the levels that Powell has been promoting. What nonsense!

But don't tell that to "the market". Since the Warsh news broke on Thursday evening, the U.S. dollar index has moved consistently higher, as you can see below:

U.S. Dollar Index

Gold Price Drops Despite Overbought Conditions

This dollar strength led to a cascading precious metal selloff of historic proportions last Friday. Were the COMEX precious metals overbought and overextended? In hindsight, yes. But were they overbought to the extent that an over $600 drop in gold was necessary? No. 

Gold 10 Minute Candlestick Chart

As we wrote in our annual macrocast, since early 2025 the gold price has been driven higher by the expectation of significant U.S. fiscal and monetary policy changes that are pending in 2026. Trump came into office with a plan to cut the U.S. budget deficit by as much as $2T through cost-cutting and waste management, led by Elon Musk and his D.O.G.E. It soon became apparent that the idea of balancing the budget and trimming the debt via austerity was a non-starter, and the plan quickly shifted to "growing our way out" by mid-2025.

Key Features of the Trump/Bessent Economic Strategy

In their attempt to accomplish this and forestall a debt-driven economic and currency collapse, President Trump and Secretary Bessent have called for sharp fed funds rate cuts from the Fed. Powell's reluctance to work with Trump and Bessent has led Trump to call for Powell's resignation and has even prompted a DoJ investigation into Powell's handling of the remodel of the Eccles Building, which houses the Federal Reserve's primary offices.

The key tenets to the Trump/Bessent plan of "growing the economy faster than the debt" are these:

•           "Running the economy hot" with deficit spending and tax cuts.

•           Significant cuts to the fed funds rate, lowering the short end of the yield curve by half.

•           Standing ready with Yield Curve Control measures if long rates begin to significantly rise.

The plan hope is that by growing the U.S. economy, the deficit-to-GDP ratio will fall from the current 6% to a more acceptable 3%. Within that number, the current annual debt service to GDP ratio must come down, too, from the current 3% to something under 2%. But that's never going to happen via austerity alone, as Trump/Bessent were quick to figure out in early 2025.

As such, why would anyone believe that Trump and Bessent would choose some sort of "hawk" to succeed Powell at the Fed? Perhaps the market thinks that Trump can be easily duped by a "Trojan Horse" Fed insider who will follow his own plan for interest rates. Perhaps you think that as well. But Bessent? Do you really think that Warsh could deceive Bessent too?

To me, there's NO WAY that Trump, Bessent, and Warsh are not on the same page regarding Fed policy in 2026 and beyond. NO WAY. Over months of interviews and negotiations, Trump and Bessent would have become CERTAIN that Warsh will work with them and not against them. I simply can't imagine Trump looking at Warsh and saying something to the effect of, "Scott and I have our plans, but you just go ahead and do what you want to do, Kevin. You can be even more hawkish than Powell. That's fine with me."

In conclusion, despite the hot takes and speculation regarding how a Warsh-led Fed will "restore the independence of the central bank", I have no doubt that rate cuts, Yield Curve Control, and negative real interest rates are incoming for 2026. As such, this latest pullback in the gold price is nothing more than a gift to anyone looking to add to their stack of physical precious metal.

 Browse gold investment options today!