Goldman Sachs Advises Investors to Over-Allocate to Gold Amid Policy Concerns, 26.6% Gain Since 2025

In recent times, investors who have traditionally relied on a 60/40 stock and bond portfolio have faced significant challenges. This once-reliable strategy, which was designed to withstand various external shocks, has shown signs of weakness in the current environment marked by trade policies and economic uncertainty.

Goldman Sachs analysts highlighted that long-term U.S. Treasury bonds have failed to provide the expected protection against stock market declines. This failure was evident during periods of heightened concerns over U.S. economic governance and recession risks, as well as during recent spikes in long-term borrowing costs due to fiscal sustainability worries.

This phenomenon is not entirely new; historically, stock and bond markets have experienced simultaneous declines, particularly during periods of high inflation or commodity shocks. To better hedge against these risks, Goldman Sachs recommended that long-term investors consider alternative assets such as gold and oil. These assets are effective in mitigating the impact of two major inflationary pressures that could otherwise erode the returns of a stock and bond portfolio. Gold is particularly noted for its ability to hedge against risks associated with central bank policies and fiscal credit deterioration, while oil can protect against negative supply shocks.

For investors with a holding period of five years or more, the analysts suggested over-allocating to gold. Since 2025, gold has seen a cumulative increase of 26.6%, reaching new highs. This surge is largely attributed to market concerns over U.S. policy, with factors such as fiscal sustainability, debt issues, and threats to the Federal Reserve's independence all contributing to gold's appeal.

Goldman Sachs analysts noted that if these concerns intensify, private investors could drive gold prices even higher, potentially exceeding the firm's current year-end target of 3700 dollars per ounce and the 2026 mid-year target of 4000 dollars per ounce. Additionally, the global trend of de-dollarization is expected to continue, with central banks increasing their gold holdings to diversify away from dollar reserves. This trend has accelerated since 2023, when the credibility of the dollar came under new scrutiny.

Regarding oil, Goldman Sachs advised maintaining a positive but underweight position. While oil can hedge against supply shocks, the expectation of ample oil market capacity in 2025-2026 reduces the risk of shortages.