May 2025 – Week 2 Edition
The Fed Meeting Delivered No Surprises or Reactions –
But Gold Soared in Advance of the Decision
The Federal Open Market Committee (FOMC) meets eight times a year, including this week. Each meeting lasts two days, on a Tuesday and Wednesday, with their interest rate policy announcement coming on Wednesday at 2:00 p.m. EST, along with a press release and a press conference by the Chairman at 2:30 p.m. As expected, there was no interest rate change this week but gold rose almost $200 in the first two days of this week in advance of the meeting and the stock market initially soared, then fell, then closed at virtually no change on this “non-event.”
When the Fed’s decision emerged here’s the initial market reaction:
The initial (2-minute) reaction to the announcement was up in both gold and stocks but the later (15-minute) reaction was down in stocks and bond yields and still up in gold. Chairman Powell began his press conference at 2:30 pm and there are usually some wide fluctuations, minute to minute, based on his spoken words and the questions he fields from the press. He is somewhat mechanical and robotic in his delivery, so every time he says something unexpected, the market may slip or soar big-time.
In his press conference, Powell presented a fairly rosy scenario on inflation and jobs, parrying any negative questions by the press, so stocks recovered by 2:45 and gold leveled off (see table, above). Then, amazingly, at 2:51, he said that the risks of higher inflation and unemployment have now risen (contradicting himself), so the stock market fell and gold rose at 2:52 pm, like magic. Then he turned positive and even threw in a touch of humor, so stocks quickly turned up at 3:00 – the one-hour mark.
In the end, Powell behaved himself, so there was no change in gold or stocks when he stopped talking with 40 minutes left in market trading. When the Fed Chairman ended his talk, the “Bond King,” Jeff Gundlach, Chief Investment Officer of DoubleLine Capital, said on CNBC that the positive for gold in its strong reaction this week is that “gold is no longer a speculation.” Each time it dips, it stays down for a day or two, then surges back, very often to a new all-time high.
I want to remind everyone that rising gold and silver prices typically bring more customers who invest in precious metals and about one in seven of those new customers begin buying rare gold and silver coins, which, in many cases, have seen even higher returns than simple increases in the bullion prices. Additionally, this extra demand causes select rare coins to become harder to find, forcing prices even higher. My advice is to get into the market sooner rather than later, so you won’t be left behind when prices rise. I always say, “It’s better to be a fast rabbit than a dead rabbit.”
Several Pundits Now Predict $4,000 Gold – And a New Fed Chair May Help It Happen
Back in 2023, when gold was $1,800, Gundlach first made his prediction of $4,000 gold, a time when no mainstream analyst was even predicting $3,000. Now, other major analysts have joined him! Analysts at JP Morgan predict $4,000 gold by mid-2026, which came after Goldman Sachs, in April, predicted $4,500 an ounce gold by the end of 2025. Also, economist Ed Yardeni predicts $4,000 gold by the end of 2025 and Société Générale, one of France’s largest banks, has predicted $4,000 gold “if world geopolitics remain unstable.”
Fed Chairman Powell has not helped gold by keeping interest rates too high for too long. Powell was appointed to the Federal Reserve Board by Barack Obama in 2012. He was then elevated to Chairman in February 2018 by President Trump, who quickly regretted that move when Powell raised interest rates one or two times too often in the fourth quarter of 2018. It’s possible that move cost Trump his Republican majority in the House in the mid-term elections and lead to a stock market sell-off in December of that year. That led to a war of words (or Presidential “tweets”) that pitted the two most powerful men in America against each other.
President Trump has called Powell “Too Late” in everything and he has a case. Powell was too late in addressing inflation under Biden, calling inflation “transitory.” He was too late in raising rates, then too late in cutting them and then cutting them too much too fast (50 basis points or 0.50%) right before the November 2024 election in a seemingly political move favoring the incumbent Democrats. Then he stopped cutting rates. Trump won’t likely “fire” Powell with just a year to go in his term, as that would arouse a lot of criticism over the Fed’s independence but since Powell’s term expires next May, it’s interesting to hear what his likely successor says:
Kevin Warsh is a former Federal Reserve governor whom many have tagged as the leading candidate to replace Powell in 2026. Recently, Warsh said the current Federal Reserve Board governors (1) get too involved in social issues, (2) talk too much in public and (3) don’t criticize Congress enough for running up excessive deficits, which ties the Fed’s hands on their interest rate and inflation decisions. Warsh offers some pretty harsh advice: “Fed leaders would be well served to skip opportunities to share their latest musings,” since they “become prisoners of their own words,” adding that “a strategic reset is necessary to mitigate losses of credibility.”
The key point: The Fed has lost credibility – not only in its timing about inflation and interest rates but their forecasts have all been incredibly off base. The Fed employs about 300 economics PhDs but they all go to the same Ivy League schools and are guilty of “groupthink” in Keynesian economics, with few free market “Austrian economists” in the mix. The appointment of a new Fed Chairman, who will lower rates, could supercharge gold in 2026.
Gold soared in the first week of May although we saw a volatile series of several wide swings. Gold began the month by dipping under $3,200 on Thursday, May 1, then rising by almost $250 above to an all-time high of $3,440 late on Tuesday, May 6th. It then dipped on the day of the Fed’s Open Market Committee (FOMC) meeting – buying on the rumor and selling on the news, even though most pundits expected no change in interest rates. Silver rose almost 5% from the low on May 1st to the high early on May 6th, before it sagged on the Fed’s announcement.
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