Fed credibility risk could push gold to $5,000: Goldman Sachs

Investing.com -- Gold could surge toward $5,000 an ounce if investor confidence in U.S. institutions weakens and undermines the Federal Reserve’s credibility, Goldman Sachs said, reinforcing its call that the metal remains the firm’s “highest-conviction long recommendation”.

The bank’s baseline forecast sees gold climbing to $3,700 by the end of 2025 and $4,000 by mid-2026, supported by ongoing central bank purchases.

It said its base case implies only “modest positive returns” for broad commodity indices over the next year, making gold an outlier in its bullish stance.

But Goldman analyst Samantha Dart cautions that tail risks are rising.

“A scenario where Fed independence is damaged would likely lead to higher inflation, higher long-end rates, lower stock prices and an erosion of the Dollar’s reserve currency status,” Dart wrote in a note.

In such an environment, they said, private investors could follow central banks in diversifying into gold, sending prices well above the bank’s $4,000 mid-2026 baseline.

Dart estimates if just 1% of the privately owned U.S. Treasury market shifted into gold, the metal’s price could reach nearly $5,000 an ounce.

That compares with the bank’s existing tail-risk scenario of $4,500, which already assumes a jump in central bank demand to 110 tonnes per month, ETF holdings rebounding to pandemic-era levels, and positioning at the top of historical ranges.

Beyond Fed credibility, Goldman highlighted growing risks from commodity supply concentration in geopolitical hotspots such as the Middle East, Russia, the U.S. and China.

Export restrictions and disruptions to key trading routes, alongside moderating OPEC+ spare capacity, have increased the potential for price spikes across raw materials.

The analyst pointed to Russia’s curtailment of gas exports to Europe in 2021 and China’s recent restrictions on rare earths as examples of commodities being used as leverage.

“While high OPEC+ oil supply spare capacity through early 2025 would have likely capped oil price upside in a more significant disruption scenario, OPEC+ spare capacity is now moderating, leaving oil markets more vulnerable to upward price spikes under a supply disruption shock,” the note states.

Structural trends are also tightening commodity markets, particularly in gold and copper, where supply is unresponsive or slow to adjust.

Goldman cited three long-term drivers: de-risking energy through power grid investment, rising defense spending, and dollar diversification.

Central banks, especially in Asia, have been major buyers of gold since 2022, a trend that followed the freezing of Russian dollar assets. That buying spree, Goldman noted, has been the primary driver of a 94% rally in gold prices since 2022.

While Goldman’s base case implies only modest positive returns across broad commodity indices over the next year, it underscored that “commodities as a hedge against inflation (and other tail) risks is increasingly relevant in the current environment.”

Against that backdrop, the bank sees gold not only as a defensive asset but also as the clearest beneficiary of any erosion in U.S. institutional credibility.