"Sell America" returns! Powell's investigation triggers a "triple kill" in stocks, currencies, and bonds, with gold prices soaring past $4,620 to set a new historical high

The U.S. Department of Justice has launched an investigation into Federal Reserve Chairman Jerome Powell, raising concerns in the market about the independence of the central bank. The surge in risk aversion has driven spot gold to briefly break through $4,620 per ounce, reaching a historic high with a daily increase of 2.4%. The U.S. dollar, U.S. stock futures, and U.S. Treasuries have all declined simultaneously, with the "sell America" trading sentiment re-emerging in the market.

On January 12, Bloomberg reported that this investigation is the latest offensive by the Trump administration against the Federal Reserve, which has previously included attempts to fire Governor Lisa Cook and repeated calls for aggressive interest rate cuts. The sensitive issue of the Federal Reserve's independence and its impact on U.S. assets has once again become the focus of investor debate.

According to a report by The New York Times citing informed officials, the investigation was initiated by the U.S. Attorney's Office for the District of Columbia, focusing on the $2.5 billion renovation project at the Federal Reserve headquarters and whether Powell lied to Congress about the scope of the project. Powell denied the allegations in a statement, stating that "the threat of criminal charges is a consequence of the Federal Reserve's insistence on setting interest rates based on public interest rather than presidential preference."

This escalation is prompting investors to reassess whether they should reduce their risk exposure to U.S. assets and the dollar. This risk-averse logic mirrors the trading theme that dominated global markets when Trump announced comprehensive tariffs last April.

Safe-haven assets in demand; U.S. stocks, bonds, and dollar collectively decline

The current financial market is exhibiting a typical risk-averse trading pattern, with the U.S. stock market, bond market, and dollar all under pressure, while funds are pouring into precious metals.

In the realm of risk assets, U.S. stock index futures have collectively fallen, with the S&P 500 index futures down 0.5% and the Nasdaq 100 index futures down 0.7%. Long-term Treasuries are facing significant selling pressure, with the yield on the 10-year U.S. Treasury rising by 3 basis points to 4.20%. The U.S. dollar index has dropped by 0.4%, marking the largest single-day decline in nearly three weeks.

Precious metal prices have surged significantly, reaching new highs. Spot gold has risen above $4,620 per ounce, with a daily increase of 2.44%, accumulating over $300 in gains since the beginning of the year; spot silver has soared 7% to a historic high of $85.24.

Multiple institutions believe that the driving force behind the market turmoil is the repricing of political risks associated with the Federal Reserve by investors. Gary Tan from Allspring Global Investments pointed out:

"Any situation that raises doubts about the independence of the Federal Reserve will increase uncertainty in U.S. monetary policy, which may strengthen the trend of dollar diversification and boost demand for traditional hedging tools such as gold."

Fidelity International fund manager Mike Riddell added:

"Historical patterns are repeating themselves—political pressure on the Federal Reserve often means a weaker dollar, rising long-term yields, and climbing inflation expectations."

Lombard Odier's Chief Investment Officer for Asia, John Woods, stated:

"Gold is the most important geopolitical risk asset, surpassing any other category. The geopolitical risks currently facing the market are excessive."

Institutions Warn of Asset Allocation Shift

Investment institutions generally believe that this escalation will increase market volatility and may have profound effects on long-term monetary policy.

JP Morgan Asset Management pointed out that, based on more aggressive rate cut expectations, the U.S. Treasury yield curve may steepen further, meaning long-term rates will rise more than short-term rates. Lombard Odier expects greater pressure on the dollar and U.S. Treasuries.

David Chao from Invesco Asset Management stated, "The Federal Reserve's subpoena is yet another example of the declining attractiveness of U.S. assets." European Central Bank Governing Council member Francois Villeroy de Galhau previously warned that the Trump administration's criticism of the Federal Reserve is threatening the dollar's global status.

Kevin Thozet, a member of the Carmignac Investment Committee, remarked: "The risk is that the confrontation between the White House and the Federal Reserve will escalate significantly in the coming quarters." He warned that the likelihood of a Federal Reserve chair supported by Trump could raise inflation expectations.

Investigation Focuses on Renovation Cost Overruns

According to The New York Times, the federal prosecutor's office, led by Trump's long-time ally Jeanine Pirro, is investigating whether Powell misled Congress regarding the renovation project at the Federal Reserve headquarters. The project began in 2022 and is scheduled for completion in 2027, currently exceeding its budget by approximately $700 million.

The Federal Reserve explained that the cost overruns are due to rising costs of materials, equipment, and labor, as well as unforeseen circumstances such as unexpected asbestos and soil contamination. The Federal Reserve noted that these two buildings have not undergone a comprehensive renovation in nearly a century.

During a congressional hearing last June, Powell denied claims from the 2021 proposal regarding providing private elevators, restaurants, and new marble facilities for senior decision-makers. He emphasized that the project plan has "evolved continuously," with some initially included features being canceled.

In his latest statement, Powell indicated that the U.S. Department of Justice has issued a grand jury subpoena to the Federal Reserve and threatened to bring criminal charges regarding his congressional testimony. He stated he would continue to fulfill the role for which the Senate confirmed him. Trump, however, denied any connection to the subpoena from the Department of Justice, saying, "I know nothing about it."

Federal Reserve Personnel Changes Approaching

This investigation coincides with Powell's term as Federal Reserve Chair, which is set to end in May of this year. Trump stated last week that he has selected a successor and is expected to make an official announcement soon Trump's chief economic advisor, Hassett, is currently a popular candidate.

Although Powell's term as chairman will end in May, his term as a board member will last until January 2028. Powell has not disclosed whether he plans to continue serving at the central bank after this year