Trump’s Fed Pick is Spooking Markets

Former Federal Reserve Chairman William McChesney Martin once said the role of the central bank was to take away the punchbowl just as the party gets going.

Warsh is still expected to favor interest-rate cuts, in line with Trump’s policy goals, which should benefit gold over the long term.

On that basis, Kevin Warsh has already scored by apparently puncturing a bubble in precious metals through his mere nomination by President Donald Trump to lead the Fed, Adam Clark reported for Barron’s Daily.

It’s probably too early to tell what Warsh’s policy will be — or even whether his nomination will be confirmed.

But his historical record of favoring a smaller Fed balance sheet appears to have been enough to trigger a reversal of the so-called debasement trade, which has weakened the dollar and supercharged precious metals in recent months.

That shift led to massive drops in both gold and silver, with silver suffering its worst one-day decline since 1980.

The move was almost certainly an overreaction. Warsh is still expected to favor interest-rate cuts, in line with Trump’s policy goals, which should benefit gold over the long term.

But with large amounts of borrowed money tied up in speculative trades — especially silver — it didn’t take much to spark a stampede for the exits, particularly after commodity exchange CME Group raised margin requirements on various metals.

And spare a thought for those relying on “digital gold” in the form of Bitcoin, which hit a 10-month low over the weekend.