Gold Price Rally: Goldman Sachs Forecasts $5,000/Ounce Amid Fed Independence Threats

Gold prices could rally to $5,000 an ounce if the Federal Reserve's independence is damaged and investors shift holdings from Treasuries to bullion. Goldman Sachs forecasts a baseline of $4,000 an ounce by mid-2026, while a tail risk scenario suggests $4,500 and almost $5,000 if 1% of the privately owned US Treasury market flows into gold. The precious metal has rallied by over a third this year, driven by Central Bank accumulation and bets on US interest rate reductions.

Gold prices could rally to unprecedented levels, potentially reaching $5,000 an ounce, if the Federal Reserve's independence is compromised and investors shift their holdings from Treasuries to gold. This scenario is outlined in a recent report by Goldman Sachs, which forecasts a baseline price of $4,000 an ounce by mid-2026, with tail-risk scenarios suggesting $4,500 and even $5,000 if just 1% of the privately owned US Treasury market flows into gold.

The report highlights that a loss of Federal Reserve independence could lead to higher inflation, declining stock and long-term bond prices, and a weakening of the dollar's reserve currency status. In such an environment, gold, as a store of value not reliant on institutional trust, stands to benefit significantly. Goldman Sachs analysts note that gold has been one of the strongest performing major commodities this year, driven by central-bank accumulation and expectations that the Fed will soon lower US interest rates.

The report comes amid growing political pressure on the US central bank, with President Donald Trump seeking to remove Governor Lisa Cook and sharply criticizing Federal Reserve Chair Jerome Powell for overspending on the Fed's headquarters renovation and acting too slowly on interest rate cuts. Trump has even threatened to replace Powell, further fueling concerns over potential challenges to the central bank.

Goldman Sachs estimates that if 1% of the privately owned US Treasury market were to flow into gold, the gold price would rise to nearly $5,000 an ounce, assuming other factors remain unchanged. This prediction underscores the metal's potential as a store of value and hedge against economic uncertainty.

Recent strength in gold prices has been attributed to increased central-bank buying and expectations that the Fed may soon lower US interest rates. Spot gold was trading near $3,540 an ounce after touching a new record above $3,578 earlier in the week.

Global leaders have also expressed concerns about the potential consequences of a loss of Federal Reserve independence. European Central Bank President Christine Lagarde warned that such a development would pose a "serious danger" to the world.

In conclusion, the recent surge in gold prices is driven by economic uncertainty and expectations of Federal Reserve action. As inflation remains a concern and the US dollar's value depreciates, gold continues to attract investors seeking a safe haven.

References:
[1] https://www.kaohooninternational.com/markets/564662
[2] https://finance.yahoo.com/news/goldman-sachs-says-gold-could-034116657.html
[3] https://finance.yahoo.com/news/goldman-sachs-sees-gold-prices-111146784.html
[4] https://www.ainvest.com/news/goldman-sachs-predicts-5-000-ounce-fed-credibility-damaged-2509/