Has President Donald Trump just poured cold water on the gold and silver trade with his appointment of Kevin Warsh as the next chairman of the Federal Reserve?

After months of market speculation, President Donald Trump finally announced Kevin Warsh as his nominee to serve as the next chairman of the Federal Reserve. Many market observers, concerned that Trump’s upcoming pick to lead the Federal Reserve may be too prone to the influence of the 47th president, see Warsh as a safer choice than other alternative candidates discussed above.

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Warsh became the youngest member to serve on the Federal Reserve board of governors in 2006, a position he held until 2011. Warsh has also worked with legendary investor Stanley Druckenmiller, another reason the market is likely to have faith in his qualifications.

While many applauded the nomination, Warsh’s appointment on Friday also boosted the US dollar and caused prices for precious metals such as gold and silver to fall. Has Trump just poured cold water on the precious metals trade with his nomination of Warsh?

YCharts SLV Data

Since Trump took office, he has expressed frustration that the Federal Reserve has not lowered interest rates as quickly as he would like. The United States is currently in the midst of an affordability crisis, where inflation has skyrocketed, many young adults cannot afford housing, and wage growth has apparently not kept pace with the cost of living, making it difficult for people to adequately save for retirement.

The Trump administration has attempted to remove Federal Reserve Governor Lisa Cook from the board, accusing her of mortgage fraud. The administration also subpoenaed Federal Reserve Chairman Jerome Powell.

Before Warsh’s nomination, Kevin Hassett, director of Trump’s National Economic Council, also appeared to be in the running for the Federal Reserve chair. Hassett had publicly called on the Federal Reserve to reduce interest rates more quickly.

While lower rates could certainly help affordability, if done without proper economic justification, they could reaccelerate inflation or even lead to stagflation, which, over time, would have adverse effects on affordability and could also lead to the US dollar being worth much lower.

Powell’s subpoena worried the market about the independence of the Federal Reserve, and the hedge for this was precious metals, hard assets that act as safe havens amid geopolitical uncertainty or the threat of currency devaluation.

But Powell’s subpoena also sparked tremendous controversy and led Powell to issue a public response, accusing the Trump administration of issuing the subpoenas because the Federal Reserve decided to set “interest rates based on our best assessment of what will serve the public, rather than following the president’s preferences.”

This may have contributed to the Trump administration backing off a bit and going with Warsh, who the market believes is the most likely candidate to help retain an independent Federal Reserve.

Where does this leave silver, gold and other precious metals? As many analysts noted during the rally, I think it’s clear that precious metals went too far too fast. However, the threat of high inflation and currency devaluation due to rising US debt remains.

I still think investors can allocate some level of capital to precious metals within a multi-asset portfolio. However, it should be a basket of precious metals and held with a long-term mindset, given the current volatility.

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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Has President Donald Trump just poured cold water on the gold and silver trade with his appointment of Kevin Warsh as the next chairman of the Federal Reserve? was originally published by The Motley Fool