Concerns about the independence of the Federal Reserve! Goldman Sachs: Gold prices are expected to rise to $3,700 by the end of the year, with tail risks reaching $4,500

The independence of the Federal Reserve is facing unprecedented challenges, which may trigger a series of asset price adjustments and ultimately drive up gold prices.

According to reports from the Wind Trading Desk, Goldman Sachs analysts warned in a report on May 15 that against the backdrop of increasing political interference, the independence of the Federal Reserve is facing unprecedented challenges. This could lay the groundwork for gold prices to rise to $3,700 per ounce or even $4,500 per ounce.

Risks to Federal Reserve Independence Gradually Rising

During the Trump administration, openly criticizing the independence of the Fed became the norm.

Goldman Sachs stated that while historically, presidential comments and pressures on the Fed have been common, due to the precedent of "must not fire without cause," executive intervention has had limited direct impact on monetary policy.

Currently, Trump and his allies are challenging the "must not fire without cause" protection through judicial means. If the court rules to abolish this clause, the Fed's "limited independence" will be further shaken.

Goldman Sachs believes that if the court rules that the arbitrary dismissal of Fed officials is unconstitutional, it could ultimately make the Fed's system similar to the central bank models of Russia and Saudi Arabia, where political interference becomes commonplace. This would have long-term adverse effects on the stability and confidence in the dollar, potentially threatening the dollar's status as the global reserve currency. Ultimately, this could lead to interest rates being easily manipulated, long-term rates rising, the dollar weakening, and triggering an increase in gold prices.

Dollar Eroded, Gold's Safe-Haven Status Highlighted

Although the dollar's share in international settlements is still far higher than that of other currencies, the policy shifts of the Biden administration, as well as those of the European and Japanese central banks, have shown signs that the dollar's share may be under threat.

Goldman Sachs is concerned that political interference and increased institutional uncertainty will reduce the dollar's safe-haven and financing functions, prompting countries and businesses holding dollar reserves to decrease their dollar exposure.

As a "store of value" that does not rely on institutional trust, gold may experience a new surge in the current context of the Fed's independence being threatened.

Goldman Sachs believes that although gold prices have nearly doubled since 2022, there is still room for gold prices to rise in the future.

Goldman Sachs expects gold prices to rise to $3,700 per ounce by the end of the year (a 16% increase from current levels), and if the market begins to reprice tail risks (one major risk being the potential loss of Fed independence), gold prices could further rise to above $4,500 per ounce.

Goldman Sachs stated that gold, as a neutral collateral, is a means of storing value that does not rely on institutional trust. When people are skeptical about the existing monetary system and new or restored monetary anchors have yet to be determined, the value of gold tends to rise.

In the 1970s, the Fed succumbed to political demands, leading to soaring inflation and a significant drop in real interest rates into negative territory. The market sought reliable stores of value, and from mid-1971 to the end of 1978, gold prices rose from $42 per ounce to over $200 per ounce, a fivefold increase.

The "breakdown" occurred again in 1979, with the Iranian Revolution and the subsequent freezing of Iranian central bank reserves raising new questions about the neutrality of dollar-based reserves. The weakening of monetary and geopolitical neutrality ultimately led to gold prices soaring to $850 per ounce in January 1980 (equivalent to $3,500 per ounce in 2025 dollars). **

Goldman Sachs emphasizes that similar pressures also exist today. Geopolitical neutrality first broke down after the freezing of the Russian central bank's reserves following the 2022 Russia-Ukraine conflict. Since then, demand for gold among central banks (especially those in emerging markets) has increased fivefold. Central banks are seeking refuge in the only reserve asset that cannot be frozen (when stored in domestic vaults).

If concerns about institutional credibility intensify, private investors may turn to less dollar-dominated portfolios alongside central banks, which would drive gold prices far above previous forecasts. Because any small withdrawal from U.S. fixed income or risk assets could become a significant step for the gold market.