On Tuesday, gold prices soared to unprecedented levels, reaching a record high of $3,500 per troy ounce. This surge coincided with escalated criticisms from former President Donald Trump directed at Federal Reserve Chair Jay Powell, raising concerns over the independence of the Federal Reserve and implications for the broader U.S. economy.

Market Dynamics and Investor Reactions

The demand for safe-haven assets, such as gold, propelled its price to a notable increase of 2 percent, settling at $3,500.10. Concurrently, the Japanese yen appreciated against the dollar, trading at ¥140, as the dollar index struggled near a three-year low.

Trump’s recent remarks on his Truth Social platform labeled Powell as “Mr. Too Late” and urged immediate reductions in borrowing costs. This critique follows Powell’s warning that the administration’s tariffs could significantly hinder economic growth and exacerbate inflation.

Concerns Over Federal Reserve Independence

The ongoing pressure from Trump on Powell has heightened fears regarding the Federal Reserve’s autonomy. Ewa Manthey, a commodities strategist at ING, noted that this situation has contributed to a marked shift towards haven assets among investors.

Trevor Greetham, head of multi-asset investments at Royal London Asset Management, emphasized that any erosion of the Fed’s independence could undermine the credibility of U.S. financial institutions, which have been hard-earned over decades.

Impacts on Financial Markets

Following Trump’s remarks, the S&P 500 index declined by 2.4 percent, while the Nasdaq dropped 2.6 percent. European markets also registered losses, with the Stoxx Europe 600 index down by 0.6 percent. However, futures indicate potential rebounds for Wall Street in early trading sessions.

In addition, analysts at MUFG highlighted a significant correlation between Trump’s comments and the marked selling of U.S. equities, bonds, and the dollar, which collectively reflect growing investor unease regarding the Fed’s independence.

Economic Outlook and Inflation Concerns

While the dollar showed slight recovery, trading 0.1 percent higher against a range of currencies, it still recorded a 9 percent decline year-to-date. Treasury yields remained stable, with the 10-year yield slightly increasing to 4.42 percent.

Economists warn that Trump’s aggressive stance towards the Fed could have deleterious effects on the U.S. economy. Michael Feroli, chief U.S. economist at JPMorgan Chase, stated that removing the Fed’s independence could lead to heightened inflationary pressures, complicated by tariffs and existing inflation expectations.

Investor Behavior and Demand Trends

Gold, often viewed as a hedge against inflation, has appreciated by 33 percent this year alone. According to Standard Chartered, investors injected over $19 billion into gold-backed exchange-traded funds in the first quarter. Alexander Zumpfe, a bullion trader at Heraeus, remarked on the robust demand for physical gold, particularly from investors in Asia and Europe.

In Germany, there has been a noticeable increase in buying interest from private investors, even during the Easter holiday period, signaling strong sustained demand for the precious metal.