In a recent note dated May 29, 2025, Goldman Sachs strategists urged investors to boost allocations to gold, and maintain modest exposure to oil, as effective long-term hedges for balanced portfolios—in particular, the traditional 60/40 mix of equities and bonds.
1. Bonds Are Failing as Traditional Downside Protection
Historically, a 60/40 portfolio has relied on fixed income to cushion stock-market declines. But recently, US stocks and bonds have both been down simultaneously—eroding the safety cushion investors have come to rely on . For periods when real returns were negative for both stocks and bonds, either gold or oil delivered positive real returns—solidifying their role as asymmetric hedges.
2. Gold: A Safe Haven in the Face of Institutional Vulnerability
Goldman’s analysts emphasize two core drivers for an overweight allocation to gold:
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Institutional Credibility Risks: Heightened concerns over US fiscal health and pressure on Federal Reserve independence have eroded confidence—making gold more attractive.
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Central Bank Buying & De-Dollarization: Foreign central banks are diversifying away from the US dollar, amplifying demand for gold. Goldman forecasts gold reaching $3,700/oz by end-2025, and potentially $4,000/oz by mid‑2026.
In fact, bullion has already surged 26.6% year-to-date, driven by policy uncertainty—underscoring why Goldman prefers gold over bonds in the near term.
3. Oil: Underweight, But Still Useful
While gold takes the spotlight, Goldman still recommends holding oil—albeit with a moderate underweight:
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Near-Term: Ample spare capacity in oil production reduces the risk of supply squeezes through 2025–26.
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Long-Term: After 2028, slower growth in non-OPEC supply raises the chances of supply disruptions—so oil remains a critical hedge against geopolitical or energy shocks.
4. Lower Volatility, Same Return Profile? It’s Possible.
According to Goldman’s simulations, including strategic allocations to gold and oil reduces annualized volatility in a 60/40 portfolio from ~10% to approximately 7%, while preserving historical average returns (~8.7%).
Portfolio Strategy: What Should You Do?
✔️ For Long-Term Investors (5+ years):
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Overweight gold to capitalize on inflation protection, institutional concerns, and central bank buying.
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Maintain moderate oil exposure—don’t over-allocate now, but avoid zero exposure.
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Track correlations—gold and oil often move independently of stocks and bonds in stress periods.
⚠️ Key Risks to Monitor:
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Rapid fiscal or monetary policy shifts in the US.
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Sudden spikes in oil supply or demand.
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Unexpected global economic rebounds that could deflate gold’s appeal.
Bottom Line
Gold and oil aren’t fads—they’re historically grounded hedges. When traditional buffers fail, these commodities step in. Goldman Sachs recommends leaning into this strategy: go overweight gold, underweight (but not zero) oil, and strengthen your portfolio’s defense against inflation, policy risks, and supply shocks.
