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Investing.com -- Goldman Sachs made the case for long-term investors to reconsider the roles of gold and oil in their portfolios, citing their historical effectiveness as hedges against inflation shocks and systemic risks.
In a recent note titled The Strategic Case for Gold and Oil in Long-Run Portfolios, Goldman Sachs analysts recommend a “higher-than-usual allocation to gold” and a “lower-than-usual allocation to oil” over a five-year horizon.
According to Goldman Sachs, “positive long-run allocations to gold and enhanced oil futures are optimal for investors seeking to minimize risk or tail losses for a given return.”
The bank highlights that gold serves as a hedge against waning fiscal and central bank credibility, while oil can protect against negative supply shocks.
Historically, “during any 12-month period when real returns were negative for both stocks and bonds, either oil or gold have delivered positive real returns.”
The call to overweight gold is based on two primary factors: “the high risk of shocks to U.S. institutional credibility (e.g., fiscal expansion, pressure on the Fed), and the central bank demand boost to gold.”
In contrast, the underweight recommendation for oil is driven by near-term supply dynamics. “High spare capacity... reduces the risk of 2025-2026 shortages,” Goldman wrote.
However, the bank also noted that “a sharp slowdown in non-OPEC supply growth from 2028 raises the risk of oil inflation shocks down the road,” justifying a continued, albeit limited, strategic allocation.
For tactical portfolios with a shorter time frame of zero to two years, Goldman recommends using “oil puts (or put spreads) to hedge against ongoing recession risks and to benefit from increasing oil supply.”