Picton Hedge Fund Warns Markets Will Penalize the Fed If It Yields to Trump

Bond investors are likely to push back swiftly if US President Donald Trump appoints a Federal Reserve chair perceived as too willing to bend to political pressure, according to David Picton, chief executive officer of Picton Investments. In that environment, Picton believes precious metals such as gold and silver remain effective safeguards against rising political uncertainty.

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Picton pointed to a clear link between political rhetoric and investor behavior, particularly in markets tied to currency debasement concerns. He noted that spikes in activity on Truth Social Trump’s preferred social media platform often coincide with moves in assets like gold, silver, and other commodity-based hedges.

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“There’s a relationship between how much is being posted and what’s happening in the debasement trade,” Picton said, referring to precious metals and similar assets that investors turn to during periods of heightened political risk.

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That relationship was on display early last week when gold and silver prices jumped as a wave of “Sell America” sentiment swept through markets. The move followed a renewed escalation in the administration’s criticism of current Fed Chair Jerome Powell. Precious metals extended their gains again on Monday after Trump intensified his rhetoric toward Europe, reiterating his stance that the United States should exert control over Greenland, a strategically important Arctic territory long governed by Denmark.

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Political tensions around the Federal Reserve have deepened following news that the Justice Department issued a subpoena to the central bank concerning Powell’s testimony related to renovations at the Fed’s headquarters. Powell has pushed back against the probe, arguing that the criminal investigation is being used as a pretext to punish him for not lowering interest rates more aggressively.

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These developments have amplified investor concerns about the extent to which the White House might attempt to undermine the Fed’s independence. Lawmakers have taken notice. Senator Thom Tillis, a Republican from North Carolina, has publicly stated that any Federal Reserve nominees put forward by Trump will face heightened scrutiny going forward.

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Despite the mounting pressure, Picton said he does not believe the Fed will ultimately lose its autonomy. Still, he warned that repeated public attacks on the central bank’s leadership are damaging to market confidence.

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“If a new Fed chair were installed who behaved like Arthur Burns in the 1970s essentially yielding to presidential demands the bond market would punish that extremely quickly,” Picton said. In his view, fixed-income investors would not tolerate a politicized monetary policy for long.

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Looking ahead to the broader investment landscape, Picton sees a meaningful chance that global economic growth accelerates this year, supported by a wave of stimulus. Governments across major economies including the US, Europe, and China are leaning on both monetary and fiscal tools to boost activity, with spending plans that include large-scale infrastructure projects and increased defense budgets.

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As stimulus takes hold, Picton expects market leadership to widen beyond a narrow group of stocks. A broader range of sectors could benefit if economic momentum builds and investor confidence improves.

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Technology, however, may be entering a more selective phase. Picton noted that capital discipline is becoming increasingly important in the artificial intelligence space, where investors are starting to differentiate more clearly between winners and laggards. That sorting process could limit near-term upside for parts of the tech sector.

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As a result, Picton believes capital could rotate out of crowded technology trades and into other areas of the market. He highlighted autos, restaurants, consumer discretionary stocks, and transportation as potential beneficiaries of that shift.

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While the overall backdrop appears supportive for equities, Picton cautioned that market pullbacks remain a constant risk. One potential catalyst for a correction would be a sharp rise in bond yields if fixed-income investors begin pushing back against excessive government borrowing.

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“The bond vigilantes may have something to say about this,” Picton said, adding that his firm has increased its hedging strategies to help protect portfolios if markets stumble.

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Picton remains particularly constructive on commodities, citing years of underinvestment paired with steadily rising demand. That imbalance, he said, has been building toward a supply squeeze and he believes the market may now be experiencing it.

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Silver surged to $94 an ounce in early trading, extending a remarkable rally that saw the metal climb 148% last year. That marked silver’s strongest annual performance since the late 1970s.

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Despite the surge, Picton said he would welcome a pullback in prices. “I’d like to add a bit more, but I’m probably not alone in thinking that,” he said.

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In his view, silver’s long-term outlook remains compelling due to persistent supply shortages and its essential role across the global economy. Silver is a critical input for electrical systems, solar energy, and a wide range of industrial applications, making demand difficult to replace.

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“You need silver,” Picton said. “You need it in electricity, you need it in solar you simply need it in the economy.”

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For investors navigating political noise and shifting market dynamics, Picton’s message is clear: bond markets still matter, and commodities especially precious metals remain powerful tools for managing risk.

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