Gold Rallies to Another All-Time High

The precious metal has moved within striking distance of $3,700, but Goldman Sachs says even $5,000 is possible if Trump wins his tug-of-war with the Fed.

Gold Prices Notch Another Historic High

Gold climbed above $3,685 per ounce on Monday afternoon, a new all-time high, just days after topping 3,674 per ounce last Tuesday, according to data from Investing.com. The precious metal has rallied in tandem with equities, which also saw major stock indices set new records. Bitcoin joined the run-up last week, but it stayed below August’s $124,457 all-time high and was mostly treading water on Monday.

Much of the bullish sentiment was ignited last week despite a slightly hotter-than-expected consumer price index (CPI). The culprit was a record jump in jobless claims, which all but sealed the deal for an interest rate cut by the Federal Reserve when it meets tomorrow for its two-day Federal Open Market Committee (FOMC) meeting.

(The probability of a rate cut by the Fed this week is all but certain after Friday’s surprise jump in jobless claims / Fedwatch tool courtesy of cmegroup.com) But commodity traders are already front-running the central bank’s decision and pricing in a 25-basis point cut, which has pushed the precious metal’s price above the $3,685 threshold for the first time ever. And if another unconventional catalyst, such as an encroachment on Fed independence, is thrown into the mix, $5,000 gold could come into play, according to investment banking giant Goldman Sachs.

“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,” Goldman Sachs analysts wrote in a note as reported by the New York Post. “In contrast, gold is a store of value that doesn’t rely on institutional trust.”

U.S. President Donald Trump has been embroiled in a months-long conflict with Fed Chair Jerome Powell, who has been reluctant to lower rates due to persistent inflation. One Fed governor mysteriously quit and was replaced by a Trump loyalist. Another governor, Lisa Cook, was fired by the president over allegations of mortgage fraud.

Cook successfully fought the dismissal via a court-ordered temporary restraining order and will participate in tomorrow’s meeting. However, with three Trump-appointed governors already serving on the seven-member Federal Reserve Board, many view the administration’s actions against Cook as an attempt to stack the board with Trump lapdogs and extinguish U.S. central bank independence.

“Concerns about central bank independence should be really important when inflation is high,” said Bank of New York Chief Economist Vincent Reinhart during an interview with Politico. “That independence does grant them the ability to do something hard.”