Goldman Sachs recommends investors buy gold as recession risks remain high.
Gold is preferred over Treasurys for hedging the risk of US government instability.
Central banks’ dollar diversification efforts should also boot gold demand, Goldman said.
Investors should buy gold as the stock market continues to underprice the risk of a recession later this year.
That’s according to Goldman Sachs, who said in a note on Tuesday that gold, even after its 26% year-to-date surge, could zoom past its price target of $3,700.
“We recommend that investors hedge still elevated cyclical recession risk with oil puts and long gold positions,” Goldman Sachs’ Daan Struyven said.
Beware of a recession
Despite the Trump administration’s 90-day tariff pause, “the chances of recession remains unusually high,” Struyven warned.
The analyst said that the stock market’s sharp rebound since its April low also leaves little upside to be had for risk assets, even if trade relations between the US and China improve.
“The level of policy uncertainty remains very high, businesses and consumers expect very weak activity, real income growth is likely to compress, financial conditions remain tighter than a few months ago, and US production disruptions are plausible,” Struyven said.
Investors got their first taste of an economic slowdown on Wednesday, with first-quarter GDP growth coming in at -0.4%.
If a recession does strike, Goldman says the S&P 500 could plunge 16% from current levels to $4,600.
Gold is a better hedge than Treasurys
Struyven prefers gold as a portfolio hedge for investors as compared to Treasurys because Treasurys haven’t been providing as much protection against stock market sell-offs as they used to.
“Longer-dated US Treasuries and USD longs—may continue to fail protecting against equity risk,” Struyven said.
Part of the problem is that in recent weeks, typical safe haven assets like Treasurys and the US dollar have been acting like emerging market assets amid the Trump administration’s chaotic tariff policies and threats against Fed Chairman Jerome Powell.
“The unusual ‘EM-style correlations’ (equities down/yields higher/USD down) that we have seen recently are a clear signal that markets are concerned about what recent policy actions imply about US governance and institutional credibility,” Struyven explained.
As investors choose gold over Treasurys to protect their portfolios, the shiny metal could surge past $3,700 and to as high as $4,800 by mid-2026, representing potential upside of 12% and 21%, respectively.
And in a tail-risk scenarios, in which there are unprecedented risks to the stability of the Federal Reserve or drastic changes in US reserve policy, gold could soar as high as 36% to $4,500 by the end of the year.
A long-term reason to be bullish on gold
Aside from the short-term risks to the economy and stock market, Struyven said there are long-term reasons to be bullish on the metal.
One reason is the trend of diversification among central banks around the world, as countries seek to hedge their exposure to a depreciating dollar and limit holdings of an asset that can be subject to extreme sanctions, as Russia has experienced since its invasion of Ukraine.
“The diversification out of dollar reserves in the official sector and the associated fivefold increase in central bank purchases of gold since 2022 has driven the bulk of the 76% gold rally since the freezing of Russia’s reserves in 2022,” Struyven said.
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