Gold nudged its way back above the US$1,200 mark on Wednesday following the widely-trailed quarter point rate rise by the Fed’s Open Market Committee.
It was a slightly counterintuitive move as a rate rise is generally held to herald gold price weakness, but that was because - in spite of the rise - on the whole Fed chairman Janet Yellen struck a more dovish note than many had expected.
Where she might have cast herself in a stronger mould on the basis of the stronger economic performance the US has lately been putting in, she actually has several reasons still to be looking over her shoulder.
On the economic front there are issues of productivity and demographics to contend with, although at least employment is looking better now.
But it’s really on the political front that she has to worry.
Donald Trump tilted at her even before he was elected.
Further personal criticism has since been muted but his efforts to get the Dodd-Frank Act repealed by executive order still represent a strong sideways attack on everything the alliance between the Obama administration and the Federal Reserve has tried to do since the global financial crisis derailed the economy in 2008.
Trump says Dodd-Frank is restricting lending to US business although it’s generally accepted that the data contradicts that claim - commercial and industrial bank loans are at an all-time high, according to data released by the Fed itself, and this may be one reason why the recent job numbers have been strong.
But not strong enough for Trump.
He has talked an extremely good game about reviving American manufacturing and if he is to stand any sort of a chance of delivering he’s going to need a weak dollar to help exports, and a weak borrowing rate so that his financing costs don’t go through the roof.
Moral outrage from the right about fiscal deficits used to be ten-a-penny when the Democrats were running the government and it will be interesting to see what the radio talk show hosts in the Bible Belt make of Trump’s new plans.
The Fed under Janet Yellen may try to argue, as others have argued in the UK and elsewhere before, that some economies simply mature beyond manufacturing and have to focus elsewhere. What’s needed for the left-behind is social welfare and re-training, not a revival of defunct 20th Century industries. East and West Coast America would hasten to agree.
But this doesn’t play so well in self-reliant Middle America where men are men and big government and intervention by big government is bad. Trump’s plans subvert this standard template under cover of the slogan of making America “great” again. It can’t be a Keynesian-stimulus of the socialist variety if it’s used to build up the American military-industrial complex, can it?
Instead, under those circumstances deliberately running a greater deficit to support certain areas of economic output becomes all-American, no questions asked.
That places the Fed in an awkward set of political cross-hairs.
The Fed’s mandate is to look after employment right across the USA and not just in manufacturing.
But on the whole, the Fed’s is doing well enough in manufacturing as anywhere else: employment in the private sector rose by 298,000 in February, with 66,000 new jobs in construction and 32,000 in manufacturing.
By the by, there were also 8,000 new jobs in mining and natural resources.
It’s too early for Trump to claim any sort of credit for this though, so politically he has to go the other way: it’s not enough.
To create more, Dodd-Frank needs to go, the dollar needs to be weaker and the Fed needs to lose its academic bias towards the views of economists. Trump instead will angle for a more business-focussed board of governors.
And he might get his way. Appointments to the Fed’s board are in the gift of the President and there will shortly be three vacancies on the seven person, board following news of the planned resignation of Daniel Tarullo this April.
Whether the Senate will approve Trump’s nominations remains open to question, but unlike President Obama, who left office with a record amount of failed Fed nominations to his name, Trump can at least hope that his own party’s majority in the Senate will help steer his nominees through.
Yellen’s own term - along with that of vice-chairman Stanley Fischer - is likely to come to an end next year, unless President Trump re-nominates her, which seems unlikely.
With all that in mind, it was no wonder she was more circumspect on monetary policy last Wednesday than economists might have expected.
Which is why the gold bulls were able to pick up a few crumbs of comfort and initiate a few light forays into the market.
One senses the bigger action is still to come, however.