Goldman Sachs' Chief Says: The Only Sure Trade Right Now - Short the US Dollar, Long Gold!

Jan Hatzius, chief economist at Goldman Sachs, has been inconsistent in his recent recession forecasts. He attempted to restore his credibility with a recent report, employing the economists' common tactic of "hedging" – on one hand, suggesting that Trump's radical tariff plans might unexpectedly succeed, and on the other, boasting about the resilience of the US economy, while also succumbing to the pressure of academic authority and continuing to advocate for the existing "free trade" system.

This week, Hatzius had to admit that Trump's tough strategies might indeed work, but he added, just in case: if the divergence between real economy data and survey data continues to widen, it could ultimately lead to a macroeconomic collapse.

However,his only confident recommendation is: short the US dollar and buy gold.

Here is an analysis of his original statements:

1. The Trump administration is softening some of its most radical tariff policies

After suspending reciprocal tariffs for 90 days and exempting ICT products from tariffs, the White House recently adjusted tariffs on auto parts to avoid overlapping with steel and aluminum tariffs and to compensate automakers for some of their costs. It is expected that preliminary trade agreements will soon be reached with some countries. The negotiation atmosphere has improved.

2. Real economy data shows resilience

Although the April non-farm payrolls data was collected earlier (April 6-12), the latest seasonally adjusted data on unemployment insurance claims indicates that the labour market remains robust (at least on the layoff side). These data have driven a significant easing of financial conditions. We estimate that the peak drag of financial conditions on GDP growth has fallen from 1 percentage point in April to 0.2 percentage points in Q3.

3. However, the recession risk over the next 12 months remains at 45%

It is expected that taxes may still be increased in areas such as pharmaceuticals and semiconductors, and there is still a risk that the suspended reciprocal tariffs will take effect. Real economy data typically lags, and forward purchasing behavior exacerbates this lag. Notably, the deterioration in survey data (though imperfect, it is not affected by stockpiling) has exceeded typical recession levels, particularly in consumer and business expectations indicators.

4. The US Fed's policy outlook remains uncertain

We have postponed our expectation for the first interest rate cut from June to July (still expecting three cuts for the year). Trump's criticism will not influence the US Fed's decisions – as long as inflation expectations remain stable, the US Fed will neither cut interest rates prematurely nor refuse to cut them when employment deteriorates. However, we are concerned that the White House might gain the power to dismiss US Fed officials without just cause, which would seriously undermine the US Fed's independence. History shows that a decline in central bank independence leads to worsening inflation.

Hatzius concluded, "Investors are facing a delicate moment. Although economic data has temporarily outperformed expectations, the rally in risky assets has already overextended this positive news. If a trade deal is reached in the coming weeks, the market may continue to rise. However, our strategists warn that amid potential soaring prices, supply chain disruptions, and a wave of unemployment, the risk of rushing to buy amid continuous price rise is extremely high. Our most resolute recommendation remains to short the US dollar and go long on gold. In addition, we are bullish on UK gilts, copper, and natural gas, but bearish on crude oil."