Now that the gold futures price finally appears to be breathing easier in the rarified air above $3,500 per ounce, observers are wondering aloud as to just what might be next for the yellow metal.
The growing belief that a resumption of rate cuts could be imminent has energized chatter suggesting $4,000 gold may be around the corner. But even as many are setting their sights on $4,000, strategists at global investment banking giant Goldman Sachs are going a step further, now suggesting that the practically stratospheric $5,000 price level could come close to being achieved before the current metals bull market has reached its climax. If it happens, says Goldman, the core driver is likely to be an intensification of already-mounting concerns about Federal Reserve independence.
Goldman Analysts Say Damage to Fed Independence Would Push Gold Considerably Higher
In a note, the analyst team…which includes Samantha Dart, Goldman’s co-head of global commodities research, said, “A scenario where Fed independence is damaged would likely lead to higher inflation, lower stock and long-dated bond prices, and an erosion of the dollar’s reserve-currency status.”
“In contrast,” the strategists added, “gold is a store of value that doesn’t rely on institutional trust.”
The Goldman team says $4,000 is their baseline price target for gold over the next year. That target price rises to $4,500 if the analysts’ tail-risk scenario comes to pass, one that sees central bank gold demand increase to 110 metric tons per month and inflows into gold-backed exchange-traded funds revisit the record levels set during the pandemic.
And $5,000 gold? The analysts believe we could see it if a profound loss of faith in U.S. Treasuries…triggered in no small way by persistent and growing concerns about Fed independence…drives just 1% of the privately owned Treasury market (investors other than the federal government and the Federal Reserve) into the metal.
“Gold Remains Our Highest-Conviction” Trade in the Commodities Space
“We estimate that if 1% of the privately owned U.S. Treasury market were to flow into gold, the gold price would rise to nearly $5,000 an ounce, assuming everything else constant,” the Goldman analysts said. “As a result, gold remains our highest-conviction long recommendation in the commodities space.”
It remains unclear at how much risk Fed independence really is, although there’s no shortage of notables who’ve gone on the record to voice their concerns about it. In a recent interview, for example, European Central Bank President Christine Lagarde suggested that focused efforts by President Trump to push out Fed Chair Jerome Powell or Fed Governor Lisa Cook would pose “a very serious danger for the U.S. economy and the world economy.”
As for me, rather than deciding how much stock to put in the threat of a compromised Fed or even in specific price targets, I remain focused on what I believe is the broader message about gold being transmitted by Goldman analysts and others right now: Namely, that the unprecedented uncertainty which has helped power the price of gold higher by more than 100% over the last three years is poised to continue through the foreseeable future. And that as long as it does, investors of all stripes would do well to view gold with the same “conviction” with which Goldman’s esteemed analysts see it.
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The Gold Strategist 