President Donald Trump has nominated Kevin Warsh, a former Federal Reserve governor, to lead the Fed. The decision appears to be influenced by Warsh’s recent shift toward a more flexible view on interest rates.
Even so, markets were not convinced the potential new Fed chair would adopt a particularly dovish stance. Following the announcement — and amid CME Group’s margin requirement increases amid volatility — precious metals, especially gold (XAUUSD) and silver (XAGUSD), took a historic beating. The dollar index, meanwhile, surged.
Why such a negative reaction?
For starters, the data does not yet support a rate cut, which is why the Fed kept rates unchanged last week at 3.5%–3.75%. More specifically, Jerome Powell said the Fed can afford to wait and see, and partly blamed Trump’s tariffs for keeping inflation elevated.
As for Warsh himself, even if we assume he truly supports faster rate cuts despite weak macroeconomic justification, he also favors reducing the Fed’s balance sheet. In other words, he wants to stop printing money — a policy he sees as contributing to fiscal erosion, market distortions, and growing imbalances. While such an agenda would likely face resistance from other Fed members, if he does succeed, it would support the dollar and be clearly negative for gold.
That said, for Warsh to take office, he must still clear two Senate confirmations: first, to rejoin the Board of Governors by replacing S. Miran, and then to assume the chairmanship in May, when Jerome Powell’s term expires. Several Republican senators have already warned they will not approve any of Trump’s nominees until the legal situation surrounding Powell is resolved, a stance that could significantly delay the entire process.
But markets appear to have already moved past Kevin Warsh, with precious metals attempting another rebound on Monday. The bad news is that such volatility in assets that are supposed to be defensive suggests that, if a broader risk-off move occurs, they may fail to surge as a hedge.
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