Goldman Sachs strategists say that this is a way to protect against inflation risks caused by the U.S. election.
According to them, inflation and bond returns would be most at risk if the Republicans won both the presidency and both houses of Congress. This is because of higher import tariffs, slower immigration, tighter sanctions on Iranian oil, lower taxes, and, as Goldman put it, “stronger attempts to influence Fed policy.”
Trump, the former president who is on track to become the Republican nominee for president for a third time in a row, has suggested that tariffs should be used instead of income taxes.
The Wall Street Journal said that Trump supporters have made plans to weaken the independence of the Federal Reserve. However, the campaign has not confirmed that it has any such plans.
The Goldman team says that a Democratic party sweep comes with its own risks, such as big tax hikes for businesses.
Four things that Daan Struyven and his team of strategists say make gold a good hedge.
One is that it thinks gold GC00, 1.08% could rise to $2,700 an ounce by the end of the year. This is because Asian households and central banks in emerging markets are buying a lot of it.
On Wednesday, gold futures GC00, 1.08% fell to $2,343 an ounce. This year, they’ve gone up 13%.
The strategists at Goldman say that the price of gold could go up by another 15% if sanctions rise by the same amount as they have since 2021.
If people are worried about the U.S. government’s ability to pay back its debt, U.S. credit-default swaps could widen by one standard deviation, which could lead to another 15% rise.
They say that another worry is that “Chair Powell’s term ends in May 2026 and the Trump administration was more vocal than its predecessors about the Fed’s stance. There may be greater market concern about the potential for Fed subordination, which would likely strongly support gold prices.”
They also say that buying gold options is a good deal. They say that with a six-month implied volatility of 14%, which is in the 27th percentile of the last 15 years, it’s a good risk-reward trade to buy gold call options as protection.
They do say that the Fed could stop gold’s rise with a “conventionally tighter” response to the market.
In addition to gold, they think long positions in crude oil CL.1, 0.74% are worth it as a hedge against inflation and geopolitics.
