Historic plunge in gold and silver, Waller is not the scapegoat

Last Friday, gold and silver experienced an epic crash, marking the largest single-day drop in forty years. The New York Stock Exchange gold plummeted from a historical high of $5,626 to a low of $4,700; silver was even more volatile, with an intraday fluctuation of up to 38%, dropping from a peak of $121 to $74, before closing back at $82.

Figure: Gold and silver crash

That evening, Trump confirmed via a post the nomination of former Federal Reserve Governor and Estee Lauder family son-in-law Kevin Warsh as the new Federal Reserve Chairman. Due to his previous opposition to quantitative easing, he is seen as a representative of the hawkish stance, and the market attributed this round of plummet to his nomination.

I. What kind of Federal Reserve Chairman will Warsh be?

At 56 years old, Warsh is a typical Jewish elite straddling politics and business. He earned his Juris Doctor degree from Harvard University and, like Powell, is an "old master" wearing an economics hat. He entered Wall Street in 1995 and was recommended by George W. Bush in 2006 as the youngest Federal Reserve Governor. He stabilized the market during the financial crisis but later left due to his opposition to excessive QE.

Figure: Kevin Warsh

The most striking label on him is that he married Jane Lauder from the Estee Lauder family, and his father-in-law Ronald Lauder has maintained a good personal relationship with Trump. During Trump's first term, he considered nominating Warsh as chairman but ultimately chose the "more compliant" Powell; this nomination may carry a hint of making up for past regrets.

Historically, Warsh's stance has indeed been hawkish, focusing more on inflation risks and clearly opposing unlimited quantitative easing. However, during this year's chairman race, his rhetoric turned dovish, suggesting that tariffs do not necessarily lead to inflation and that productivity brought by AI can sustain growth amid low inflation, supporting interest rate cuts.

Figure: The probability of interest rate cuts this year remains at 2 times

However, I believe that rather than simply debating hawkish or dovish tendencies, more attention should be paid to Warsh's professional characteristics. He opposes the "data-dependent" decision-making that follows blindly and instead advocates for formulating medium- to long-term monetary policy guidelines based on the judgment of cycles. Overemphasizing single-month data may lead to policy lag risks and increase meeting uncertainties.

Most importantly, Warsh is a staunch supporter of Federal Reserve independence, opposing the Fed becoming a subsidiary of the Treasury. This is beneficial for maintaining the credibility of the dollar and weakening the process of de-dollarization.

II. The Collapse of Gold and Silver Marks the End of Speculative Frenzy

Nominating Waller clearly cannot be the scapegoat for the collapse of gold and silver. Firstly, since January, Hassert has declined, and Waller has been the hottest candidate for the Federal Reserve Chair. On betting websites, Waller's chances reached 80% before Friday, and the market has already priced this in.

Figure: Winning Odds on Betting Websites

Secondly, Waller's nomination did not trigger hawkish panic. This is reflected in the one-year SOFR swap rate, which actually fell by 3 basis points to 3.47% in the evening, and long-term U.S. Treasury yields also retreated.

Figure: U.S. Dollar Interest Rates Decline Instead of Rising

The sharp collapse of gold and silver essentially turns safe-haven assets into a risky asset game over. This year, the volatility of precious metals has soared, losing their safe-haven attributes and instead becoming a speculative barometer. The accumulated loose chips are excessive, making the bulls very fragile. Waller's nomination validates the illusion of de-dollarization and gives the bulls a reason to exit.

III. Summary

(1) Trump’s nomination of Waller as the next Federal Reserve Chair is highly likely to take office in May. Compared to his hawkish background, more attention should be paid to his professional characteristics of insisting on Fed independence, opposing MMT debt expansion, and forward-looking decision-making.

(2) The collapse of gold and silver marks the end of a frenzy, behind which are countless speculators facing liquidation. Waller's nomination merely took on this scapegoat responsibility at the right time.

Risk Warning and Disclaimer

The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not consider individual users' specific investment goals, financial situations, or needs. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investment based on this is at their own risk.