Gold Dips from Two-Week High as Dollar Gains Ground Amid Fed Drama

Gold prices edged lower on Wednesday, retreating from a recent two-week peak of $3,394 under pressure from a resurgent US dollar. Despite ongoing political turbulence surrounding efforts to remove a Federal Reserve governor, the precious metal remains supported by broader uncertainties in monetary policy.
During the American trading session, gold was consolidating around $3,380, having dipped briefly to $3,373 in Asian hours. This pullback reflects some profit-taking after the recent climb, yet downside risks are limited as investors grapple with questions over the central bank’s independence and signals of potential interest rate cuts in the near future.
Political tensions have intensified with the push to oust a Fed governor, seemingly driven more by desires to influence monetary policy than specific allegations. The move aims to secure a majority on the Fed’s board, potentially paving the way for more aggressive rate reductions. The governor in question has refused to step down and is gearing up for a legal challenge, which could escalate into a significant test of executive authority over the central bank.
The US dollar index, tracking the greenback against major currencies, advanced to hover near 98.65, recovering from a slight dip the previous day. Treasury yields presented a varied landscape: the two-year yield dropped to 3.66%, its lowest in months, amid expectations of imminent rate cuts; the 10-year yield held steady around 4.27% under strains from institutional concerns; and the 30-year yield stayed elevated near 4.92%, underscoring persistent inflation fears.

The Federal Reserve has firmly resisted the removal attempt, emphasizing that governors hold 14-year terms and can only be dismissed for cause to protect policy independence. With a potential lawsuit looming as early as Wednesday, this conflict bolsters gold’s role as a safe-haven asset, as markets hedge against prolonged institutional and political instability.
In a recent interview, a senior Fed official characterized the US economy as slowing but not stalling, with GDP growth moderating to 1%-1.5% and hiring cooling off. The official noted that current policy is modestly restrictive, with rates above neutral levels, and suggested that adjustments toward neutral could be warranted if conditions evolve as anticipated. While the labor market remains robust with unemployment at 4.2%—low by historical measures—and wage growth aligning with inflation targets, progress on curbing inflation has been sluggish, especially in services. The official stressed a data-driven approach, maintaining slight downward pressure on the economy to guide inflation back to 2%.

On the trade side, US tariffs on Indian imports have doubled to 50% following a new 25% levy on items like textiles, footwear, jewelry, and chemicals. This escalation targets India’s ongoing purchases of discounted Russian oil, impacting nearly half of its $87 billion annual exports to the US.
Meanwhile, the European Union is set to propose eliminating tariffs on US industrial goods this week in exchange for reduced US auto tariffs from 27.5% to 15%, possibly retroactive to August 1. The deal would also boost access for American seafood and agricultural products, seeking to de-escalate transatlantic trade frictions.
Tuesday’s US economic data offered mixed signals: durable goods orders declined 2.8% in July due to softer aircraft demand, though excluding transportation, they rose 1.1%, indicating underlying strength. Consumer confidence also eased to 97.4 in August from 98.7, with the expectations component falling below a level often associated with recession risks.

With a quiet data slate on Wednesday, attention shifts to Thursday’s initial jobless claims for labor market insights and Friday’s core personal consumption expenditures inflation reading—the Fed’s favored metric—as the week’s pivotal release.