Gold Surges Past $3,450 as Fed Independence Concerns Mount

Gold prices have climbed above $3,450 and are challenging the $3,500 record mark, driven by mounting concerns over Federal Reserve independence and ongoing trade war uncertainties. With US markets closed for Labor Day, XAU/USD trades at $3,476, jumping 0.87% as the precious metal capitalizes on a subdued dollar environment.

I'm watching this rally with fascination - despite inflation stubbornly sitting at nearly 3% annually (well above the Fed's 2% target), traders are still pricing in an 85% probability of a September rate cut. This disconnect between inflation reality and market expectations feels increasingly precarious.

What's particularly troubling is the political drama unfolding around the Fed. The attempted firing of Governor Lisa Cook has sparked legitimate concerns about central bank independence. When politicians start meddling with monetary policy, gold typically shines brightest - and that's exactly what we're seeing play out.

The court hearing regarding Trump's attempt to remove Cook concluded Friday without resolution. Judge Jia Cobb has requested additional briefs from Cook's legal team, pushing any decision to Tuesday at the earliest. This uncertainty only adds fuel to gold's ascent.

Meanwhile, San Francisco Fed President Mary Daly joined the dovish chorus, writing that it will "soon be time to recalibrate policy" - essentially signaling support for rate cuts despite persistent inflation. She suggested tariffs would create only a "one-off" inflation spike, a view many economists might challenge.

From a technical perspective, gold has hit a two-month high of $3,489 before slightly retreating. The RSI is approaching overbought territory but hasn't reached critical levels yet. If buying momentum continues, we could see gold break through $3,500 with potential targets at $3,550 and $3,600.

The upcoming Nonfarm Payrolls report will be crucial. Weak jobs data could cement expectations for a September cut, potentially driving gold even higher despite inflation concerns. This disconnect between inflation realities and policy expectations can't last forever - something has to give.