Donald Trump seems to have found a new favourite enemy. The US president has been laying into Jerome Powell for weeks, with Trump demanding that the boss of the US central bank lower interest rates. He has called the top currency guardian of the United States a “loser” or “Mr Too Late”. On 8 May the Republican put more wood on the fire: “Jerome Powell is a fool who doesn’t have a clue”, Trump wrote on his Truth Social platform. That was his response to the decision taken by the Fed the day before to keep the base rate unchanged in the 4.25% to 4.50% range. Despite the constant pressure, the US central bank has not acceded to the president’s wish for a loosening of monetary policy. Indeed, the Open Markets Committee would like to see first whether and how the trade war will impact on the world's largest economy. “We are in a good position to wait and see. We don't have to be in a hurry,” Powell said.
Trump’s constant tariff threats, together with his attacks on the independence of the central bank, are causing a considerable degree of uncertainty. “International investors are starting to reassess the ‘exorbitant privilege’ and safe haven status of the US dollar,” J.P. Morgan stated. Up to now foreign investors have been relying on their USD assets being safe and being treated fairly. This has enabled the United States to finance a huge trade deficit and, thanks to robust economic growth, meet all its obligations. “An independent Federal Reserve is willing to act as lender of last resort and to guarantee the liquidity and stability of the markets,” the analysts at the big bank add. Should the international investor community actually begin to query that status, a great deal would be at stake. “Over the last five decades foreign investors have steadily accumulated US financial assets,” J.P. Morgan reports.
According to figures from the Fed, these totalled almost USDtn 57 at the end of 2024 – around 200% of the gross domestic product of the USA. Alongside direct investment, the majority of this total consists of corporate and government bonds and equities. Since the turn of the millennium alone, the amount of USD assets held by international investors has increased by a factor of more than seven. The battered status of the USA is already weighing on the US dollar. At the end of April, the U.S. Dollar Index – the barometer showing the performance of the greenback relative to currencies of major US trade partners – had fallen to a three-year low. At practically the same time, the price of a troy ounce of gold hit USD 3,500 for the first time. Although the safe haven was unable to maintain this peak, J.P. Morgan remains in the bull camp. The analysts see the precious metal on a structural upward trend driven primarily by the risk of a recession and stagflation triggered by the tariff dispute. “We expect the price of gold to reach an average of USD 3,675 per ounce by the fourth quarter of 2025,” the US bank writes. In the first six months of next year the precious metal could head towards the round figure of USD 4,000.
So much for the short-term outlook. J.P. Morgan itself has just attracted attention on Wall Street and beyond with a bold hypothesis. Its Commodity Research team reckons that international investors could shift their dollar holdings to the safe haven currency. “A potential shift of just 0.5% of foreign US assets to gold could yield 18% annual returns, taking gold prices toward USD 6,000 by early 2029,” the analysts write. One argument is the fact that the gold market is relatively small, so any additional demand could move the price significantly. J.P. Morgan considers the limited growth in production to be the basis for a further rise in the price of the precious metal.
“Over the last ten years the supply of new mines has stagnated at an annual growth rate of about 1%,” the experts state. They do not disregard the fact that mining companies have lately begun to invest more capital in the expansion of their capacities. That, though, does not alter the reality that the majority of the gold available is already stored above ground. The World Gold Council (WGC) puts the quantity available as jewellery, bars, coins or in some other form in 2024 at more than 216,000 tonnes. At around 3,700 tonnes, the amount of gold extracted annually from mining is less than 2% of this figure. Another nearly 1,400 tonnes comes from recycling. Despite the price rally, however, gold recycling has been in decline recently. One way or another, there is plenty of work to do in the mining sector – all the more so if the run on the most important precious metal continues.
Source: Federal Reserve Economic Data, Federal Reserve Bank of St. Louis; as at: May 2025 Past performance is not a reliable indicator of future performance.
Source: Reuters; as at: 12 May 2025.Past performance is not a reliable indicator of future performance.