The global financial market experienced a sharp shake-up this Monday, January 12, due to the increasing political pressure on the Federal Reserve from the government. Gold rose 1.72% and silver climbed 4.5% while Bitcoin retreated from $92,000 to $90,000 after a Department of Justice (DOJ) investigation was revealed. Jerome Powell, Chair of the Fed, denounced that the legal actions against him are retaliation for not adjusting interest rates according to the executive’s wishes.
According to analysis by the firm QCP Asia, the central bank’s independence is under an unprecedented threat in its 113-year history. Capital flow has rapidly shifted toward traditional safe-haven assets to protect wealth against the nation’s institutional instability at this time. Therefore, institutional investors have begun rotating their portfolios toward precious metals as they perceive a heightened risk in risk-on assets.
Likewise, analysts observed that Bitcoin’s inability to sustain itself above key levels reflects a concerning structural weakness. Retail investor sentiment reached extreme fear during the start of the Asian session amid macroeconomic uncertainty. For this reason, the market is currently pricing in political rates instead of relying on traditional economic data for financial decision-making.
What are the implications of the loss of central bank autonomy for investors?
However, the cryptocurrency sector has failed to capitalize on the fiat system risk narrative despite the distrust in the dollar. Data from Nansen reveals that “smart money” traders maintain net short positions worth a cumulative 127 million dollars. There was also a significant reduction in exposure to long-dated call options by large institutional funds recently.
Furthermore, the capitulation behavior of short-term investors suggests that selling pressure could persist in the coming days. Market volatility will increase significantly this week due to the release of Consumer Price Index (CPI) data. In this way, the market is bracing for further sharp movements while awaiting the Supreme Court’s ruling on presidential tariffs.
Will precious metals be able to maintain their dominance over digital assets?
On the other hand, the gap between the resilience of metals and the fragility of digital assets is becoming increasingly evident to analysts. The rotation of capital toward real value assets appears to be the dominant trend in an environment of conflict between public powers. However, some traders have shifted their recovery expectations to the end of the first quarter of the year in hopes of political stabilization.
Finally, the current situation presents a scenario of great uncertainty where the financial independence of institutions is at stake. The future of the market will depend on the resolution of the conflict between the DOJ and the Federal Reserve leadership. Therefore, investors must act with extreme caution while the new rules of the economic game are defined in a climate of high government tension.
