Gold and Silver Soar, But Fed Chair Powell Says There’s No Cause for Alarm
Powell Responds to Skyrocketing Gold and Silver
Federal Reserve Chair Jerome Powell addressed the soaring prices of gold and silver on Wednesday, surprising some investors with his calm tone. Both metals, long considered safe-haven assets, have been rallying sharply—gold is up 84% year-over-year, while silver has surged 245%.
Investors often flock to these metals during times of political or economic uncertainty, especially when confidence in the U.S. dollar or government bonds wavers. Powell, however, emphasized that the rally does not signal a loss of the Fed’s credibility.
Powell on Inflation and Market Confidence
Powell highlighted the key point that short-term inflation expectations have dropped significantly, and long-term expectations remain consistent with the Fed’s 2% target.
“Our credibility is right where it needs to be,” Powell said.
According to him, gold and silver price movements alone don’t provide a meaningful signal for the Fed’s policy, and the central bank does not view the rally as a sign of systemic concern.
Two Narratives Driving Gold and Silver
Market analysts have largely split the rally into two main theories:
1. The “Sell America” Trade
This is a short-term, reactive strategy where investors move out of U.S. assets following political or policy shocks. Events like sudden tariffs or dollar volatility feed this narrative, temporarily boosting demand for gold and silver as a hedge.
2. The “Debasement Trade”
A longer-term perspective sees gold and silver as a hedge against persistent U.S. fiscal deficits, rising national debt, and expansive policy. Investors in this camp believe that over time, the dollar’s purchasing power could erode, pushing them toward tangible assets like gold.
Powell focused on the first narrative, emphasizing that inflation expectations remain anchored, indicating the Fed does not see structural issues with monetary credibility.
Record Highs, But Powell Stays Unfazed
Gold reached another all-time high this week, and silver hit a multi-year peak, yet Powell dismissed any immediate alarm. He explained that a true loss of confidence in the dollar would appear in unanchored inflation expectations, not just in asset prices.
“We don’t get spun up over particular asset price changes, although we do monitor them,” Powell said.
Some economists agree with Powell. Analysts at the Bank for International Settlements suggest that retail investor activity may have shifted gold toward speculative behavior, rather than a pure safe-haven role.
Contrasting Views from Market Experts
Not everyone is convinced. Mohamed El-Erian, former CEO of Pimco, views gold’s rally as a warning sign that trust in the U.S. as a steward of the global system is weakening.
Max Belmont, portfolio manager at First Eagle Investments, echoed this view:
“Gold is the inverse of confidence. It’s a hedge against unexpected inflation, unanticipated market drawdowns, and flare-ups in geopolitical risk.”
This interpretation frames gold and silver as barometers of investor confidence, capturing underlying fears about policy, politics, and financial stability.
What Investors Should Watch
While Powell remains confident that the Fed’s credibility is intact, the gold and silver rally highlights investor concerns about U.S. economic and political stability.
Key factors to watch in the coming months:
- Inflation trends and whether expectations remain anchored
- U.S. fiscal policy and rising national debt
- Geopolitical shocks that could drive renewed safe-haven demand
For now, Powell’s message is clear: the Fed is not alarmed, but market participants continue to weigh gold and silver as hedges against uncertainty, keeping the metals in the spotlight.