The “Fed Independence Trade” Is Heating Up — Goldman and JPMorgan Offer an Investment Guide

TradingKey - As Federal Reserve nominee Stephen Miran prepares for his Senate confirmation hearing, Wall Street analysts have finally seen evidence that investors are no longer shrugging off the erosion of Federal Reserve independence. The global selloff in long-term bonds has ignited the so-called “Fed independence trade,” with JPMorgan analyzing asset performance for clues, and Goldman Sachs forecasting gold prices could reach $5,000 per ounce.

As TradingKey has noted multiple times, the Trump 2.0 administration is actively trying to force the Fed to cut rates and reshape its leadership. Yet, until recently, markets — including U.S. equities and Treasuries — appeared unmoved by the potential consequences of undermining decades of central bank independence.

That complacency began to crack late last week, manifested in the sharp rise in long-term bond yields in the U.S. and Europe, alongside a surge in gold and other precious metals.

JPMorgan’s latest report states that the rally in gold, a rotation into value stocks, and the widening spread between 5-year and 30-year Treasury yields indicate that traders are basing bets on a resurgence in inflation — a clear sign that concerns over Fed independence are growing.

In equities, JPMorgan analyzed short-selling indicators across two stock baskets designed to simulate long/short value trades. They found that since April, short interest in value stocks has risen relative to long positions, signaling a shift toward value-oriented investing.

In commodities, JPMorgan noted that large increases in long gold futures positions, along with modest gains in oil exposure, reflect traders betting on an overheating U.S. economy. However, the bank found little evidence of the “Fed independence trade” in currency markets.

Goldman Sachs analyst Samantha Dart said that a loss of Fed independence would lead to:

• Higher inflation
• Falling stock and long-term bond prices
• Erosion of the dollar’s reserve currency status

In contrast, gold is a store of value that does not rely on institutional trust.

Goldman projects that under a base-case scenario, deteriorating Fed independence and related factors could push gold to $4,000/oz by mid-2026, and under tail-risk scenarios, as high as $4,500/oz.

If just 1% of privately held U.S. Treasury assets were to flow into gold, prices could reach $5,000/oz. As a result, gold remains Goldman’s highest-conviction long recommendation in the commodities space.