Goldman Sachs provides long-term asset allocation advice: Overweight gold and underweight crude oil in the next five years!

Recently, Goldman Sachs released a report titled "The Strategic Case for Gold and Oil in Long-Term Portfolios," suggesting that long-term investors reconsider the role of gold and oil in their portfolios, based on the historical effectiveness of these assets in hedging against inflation shocks and systemic risks.

Goldman Sachs analysts recommend that, over the next five years, "allocations to gold should be above normal levels," while "allocations to oil should be below normal levels (but still positive)."

Allocating to Gold and Oil for Risk Hedging

Goldman Sachs believes that "for investors seeking to minimize risk or tail losses given a certain level of return, an active, long-term allocation to gold and enhanced oil futures is optimal."

The bank emphasizes that gold can hedge against risks associated with declining fiscal and central bank credibility, while oil can protect against negative supply shocks.

Historically, "during any 12-month period when real returns on both stocks and bonds were negative, real returns on oil or gold were positive."

Two Key Factors Support Overweighting Gold

Goldman Sachs' call to overweight gold is primarily based on two main factors: "the elevated risk of shocks to the credibility of US institutions (e.g., fiscal expansion, pressure on the US Fed) and the boost in demand for gold from global central banks."

So far in 2025, gold prices have surged by 26.6%, setting a series of records. This is largely linked to concerns about US policies—concerns that Goldman Sachs does not expect to reverse quickly.

"If these concerns intensify, private investors could push gold prices well beyond our current forecasts—we currently forecast gold to reach $3,700 per ounce by the end of the year and $4,000 per ounce by mid-2026."

Meanwhile, amid the global trend of de-dollarization, foreign central banks will continue to increase their gold reserves to reduce reliance on US dollar-denominated assets. This trend is unlikely to change in the foreseeable future.

Strategic Rationale for Allocating to Oil

In contrast, the recommendation to underweight oil is driven by recent supply dynamics, as "high spare capacity in the crude oil market... reduces the risk of crude oil shortages in 2025-2026," Goldman Sachs writes.

However, Goldman Sachs also notes that "starting from 2028, the growth in non-OPEC crude oil supply will slow significantly, increasing the risk of future oil inflation shocks," providing a rationale for maintaining a limited strategic allocation to oil.

Goldman Sachs stated that by increasing holdings of gold and enhanced oil futures, the annualized volatility of the traditional 60/40 portfolio could be reduced from nearly 10% to 7%, while maintaining a historical average return of 8.7%.