Gold fell as investors weighed prospects for a legal battle between the White House and a Federal Reserve governor, after U.S. President Donald Trump this week moved to oust the policymaker from the central bank.

Bullion eased to trade near US$3,380 an ounce Wednesday — after a 0.8 per cent gain on Tuesday — as markets pondered whether Trump can legally remove Fed Governor Lisa Cook from her position. The outcome is set to be decided by the courts, with the president saying he is prepared for a fight after Cook’s lawyer vowed to file a lawsuit over the move. If Trump is successful, it would present him with an opportunity to both replace her with a dovish-leaning official and secure a majority on the Board of Governors.

The lawsuit is likely to help determine the extent of White House control over the U.S. central bank amid concerns over threats to its independence following criticism from Trump, who has aggressively lobbied for interest-rate cuts. Officials have so far this year resisted pressure from the administration, although on Friday Chair Jerome Powell cautiously opened the door to a reduction next month. Lower borrowing costs tend to benefit gold, which doesn’t pay interest.

Meanwhile, with the gap between short- and long-term Treasury yields widening, investors are worried that an earlier-than-expected cutting cycle may fan inflation and erode confidence in the Fed — a scenario that should also boost demand for havens such as bullion.

The precious metal has climbed by more than a quarter this year, with the bulk of those gains occurring in the first four months as heightened geopolitical and trade tensions spurred demand. It has been in a holding pattern since hitting a peak above US$3,500 an ounce in April, although some major banks, including Citigroup Inc. and the wealth management unit of UBS Group AG, see more gains later this year.

Elsewhere, the dollar strengthened as investors shifted focus to U.S. personal consumption data due on Friday. The figure — excluding food and energy — is expected to accelerate at the fastest annual pace in five years, which could limit the Fed’s ability to lower rates and provide support for the greenback. A stronger dollar is typically negative for bullion, as it is priced in the currency.

The Bloomberg Dollar Spot index was up 0.2 per cent, after falling 0.2 per cent on Tuesday. Silver, platinum and palladium all eased lower.

Bloomberg.com