Gold prices could climb to almost $5,000 an ounce if Donald Trump’s attacks on the Federal Reserve damage the US central bank’s independence, Goldman Sachs has predicted.
Gold has rallied 35 per cent this year to more than $3,500 per troy ounce, making it one of the world’s best performing major assets, writes Emily Herbert.
Investors and central banks have piled into the precious metal as they seek protection from political uncertainty and debt worries that have sent traditional havens such as the dollar and government bonds tumbling.
Fears that the US administration could erode the independence of the world’s most important central bank have fuelled the latest flows into the metal, which is traditionally viewed as a hedge against inflation.
Investors are concerned that a politicised Fed would be more inclined to cut interest rates than would otherwise be the case, sending long-term inflation expectations higher and undermining Treasury prices.
“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,” said Daan Struyven, co-head of global commodities research at Goldman Sachs.
On the other hand, “gold is a store of value that doesn’t rely on institutional trust”, Struyven said.