Federal Reserve independence has been in full focus amid President Donald Trump’s consistent attempts to undermine its authority.
While the back-and-forth between Trump and the central bank has led to volatility in both the stock and bond markets, that’s been a boon for gold, which has lived up to its reputation as a safe haven.
The precious metal hit notched another record high on Wednesday, breaking through the $3,600-an-ounce threshold for the first time ever. Gold is now up 36% year-to-date, more than triple the S&P 500‘s 10% return over the same period.
Goldman Sachs thinks the rally can continue even further, all the way to $5,000, which is roughly 40% above current levels. And the key to the firm’s forecast is Trump’s aforementioned crusade against the Fed.
The firm puts forth a bold scenario: Trump’s Fed meddling ultimately reignites the dormant “sell America” trade, causing a mass divestment from US Treasurys. While US government debt has long been considered one of the surest bets in markets, such a shift would represent a deterioration in investor faith in the US.
By Goldman’s estimation, if just 1% of the privately owned Treasury market was reallocated into gold, it would push the price of the metal up to $5,000.
The chart below shows how much upside gold could potentially have in the event of widespread Treasury selling.
Source: Haver Analytics, Bloomberg, Goldman Sachs Global Investment Research
“Gold remains our highest-conviction long recommendation in the commodities space,” said Goldman analyst Samantha Dart.
While Goldman’s $5,000-an-ounce forecast seems like an outlier, the Trump-Fed feud at the center of the firm’s concern doesn’t look to be going anywhere.
In the latest twist and turn, Fed governor Lisa Cook is currently suing the Trump administration over attempts to have her removed from her post over mortgage fraud allegations, which she has disputed.
Get the latest Gold price here.