Let's talk about Trump's Fed pick, the gold and silver crash, and what it means for you.... - Belle of the Ranch

[TexasTowelie]

Well, howdy there Internet people. It's Belle again. So, today we're going to talk about Trump's Fed pick, the gold and silver crash, and what it means for you.

Yesterday was quite the day of economic news, and it prompted a bunch of questions. So, we're going to tie the news together.

First, if you saw the news and panicked, thinking we were headed to depression, take a breather. This is what happened. Trump announced former Federal Reserve Governor Kevin Warsh was his choice for the next chairman to take over for Jerome Powell when his term ends in May. This scrambled everybody's thinking.

Warsh is widely seen as a monetary hawk. In non-economic speak, he's not expected to do exactly what Trump wants with interest rates. Historically, he's preferred higher interest rates to keep inflation down.

However, in July, he said the tariffs weren't inflationary. That's not standard thought. Producer inflation just came in higher than expected and inflation is above target and proving stubborn. But he has a reputation of being somewhat of a pragmatist who would actually look at the numbers. So it eased concerns about the Fed's independence. This means interest rates may not go down and it was an unexpected move for Trump to pick him. Markets hate uncertainty.

So immediately the metals market responded. It crashed. And I'm using that in the economic sense of the term, not the sensationalist sense. Gold was down 15% from its January 29th high and silver hit 35% down at one point.

Okay, so if you're an investor, especially if you bought metals recently, you know what this means. But for everybody else, it's important to remember why money goes into metals to begin with.

Rich people put their money into metals when the economy isn't great or they think it will tank soon. Specifically, it serves as a hedge against inflation. Big money started to move toward metals because Trump's policies are uncertain and inflationary risks persist. When big money moves toward metals, the price goes up because of increased demand.

So what does it mean that it dropped in price? Lots of big money decided to sell. More importantly, big money decided to sell when Trump announced his new Fed Chair pick. That means the big money sees his pick as somebody who can help curtail inflationary pressures or at the very least is likely to remain somewhat independent from Trump and base decisions on the numbers. So, they decided to take the profits they had made as the price went up.

Does this mean Trump was tricked and chose somebody not in line with his policies? Maybe. It could also mean the big money is misreading Trump's pick. At the same time, it's worth understanding the metals market, like the stock market, is running on emotions and had shot up to record levels based on those emotions.

If you want a snapshot of a likely future of the stock market, you just saw it. Gold hasn't seen an intraday drop like this since the 1980s. I don't think silver has ever seen a drop that big. For investors, this is shaky news. For the average person, it might be a good sign. The big money seems to think Trump's new pick might be able to keep inflation in check or at least prevent the worst outcomes from Trump's policies. We'll see if they're right later in the year.

Anyway, it's just a thought. Y'all have a good day.

[bucolic_frolic]

1. Warsh will do what Trump wants, just like his SCOTUS picks

And incidentally on the subject of inflation hedges, I found reference yesterday to an advisor promoting 'dividend achievers' or 'dividend growth' or dividend appreciation ETFs. Sure enough they were flat yesterday when the market was down. His idea was to find investments where return on capital was growing. He suggested REITS and real estate, gold and precious metals, dividend achievers, mid-term Treasuries, and agricultural land. The stock investments were a new one on me. To be explored.