As the 2024 US presidential election draws closer, the significant market volatility it may bring, how should global investors allocate assets to navigate potential fluctuations?
Goldman Sachs suggests buying gold to hedge against the inflationary pressures and geopolitical risks that may arise from the US election.
In a report released on the 18th, Goldman Sachs pointed out that holding a long position in gold has significant value in hedging against the inflation and geopolitical risks resulting from post-election impacts such as tariffs, Fed-related risks, and debt concerns.
<h2>Risks Hidden Behind the US Election</h2>
Goldman Sachs' cross-asset strategist Daan Struyven analyzed the potential impacts of the US election results on fiscal, trade, monetary, and foreign policies, and drew three conclusions:
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1. Greater Portfolio Risks under a Unified Government
Compared to a divided government, a unified government is more likely to see larger fiscal deficits, significant adjustments in fiscal policies, and downward pressure on bond yields. A Republican administration may lead to a substantial increase in tariffs, while a Democratic administration may result in a significant rise in corporate taxes, both of which would have negative impacts on the stock market.
2. If Republicans Win, Higher Risks for US Inflation and Bond Yields
In the scenario of a Republican landslide victory, the risk of inflation seems higher. This is because Republicans are more inclined to increase tariffs, slow down immigration, strengthen sanctions on Iranian oil, and attempt to exert more influence on Fed policies. When inflation faces these upward risks, it implies downward risks for bond yields.
3. Market's Response to Geopolitical Impacts Including Tariffs is the Biggest Potential Volatility Factor in Asset Markets
Goldman Sachs' cross-strategy experts quantified the potential impact of changes in fiscal and tax policies, and their conclusion is that the market's response to the tail risks brought by tariffs and geopolitical factors, actively attempting to influence the potential range of Fed policy reactions.
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<h2>Why Gold?</h2>
Among many assets, commodities especially gold stand out due to their negative correlation with inflation. When inflation unexpectedly rises, commodities can provide strong returns, while the actual returns of stocks and bonds are often dampened. This phenomenon is particularly evident in the late stages of the business cycle, where demand exceeds supply, inventories are low, driving up commodity prices.
Gold, as a commodity, can effectively combat inflation. Because when inflation unexpectedly rises, commodities often bring substantial returns, while the actual returns of stocks and bonds are often negative.
Historical data shows that when the US inflation rate unexpectedly rises by 1%, the average actual return of commodities increases by 7%, while the returns of bonds and stocks are -3% and -4% respectively.
Facing the uncertainties brought by the US election, Goldman Sachs believes that buying gold can effectively hedge against the corresponding inflation and geopolitical tail risks, for four reasons:
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1. Central Bank and Household Allocation Demand
Due to the strong demand for gold from central banks in emerging markets and Asian households, Goldman Sachs optimistically predicts that the price of gold will rise to $2700 per ounce by the end of this year
2. Geopolitical and Tariff Risks
Holding a long position in gold also helps to hedge against the risk of stock price declines triggered by trade wars.
3. Fiscal and Monetary Risks
Goldman Sachs predicts that against the backdrop of growing concerns about U.S. debt, if the U.S. CDS spread widens by one standard deviation, the gold price could rise by about 15%. With Federal Reserve Chairman Powell's term set to expire in May 2026, and the previous Trump administration's tough stance on the Fed, the market is more concerned that the Fed's decisions may face more interference from the federal government, which could provide strong support for the gold price.
4. Low Insurance Costs
The current 6-month implied volatility is 14%, ranking 27th over the past 15 years. The deviation between call options and put options is quite normal, so we believe that using gold call options will bring attractive returns.
Struyven concluded that although U.S. inflation slowed in May, considering the first-quarter inflation exceeded expectations, the U.S. government's continued large fiscal deficits, and the possibility of inflationary policies after the election, investors have reason to remain vigilant. Historical experience tells us that inflation often quietly rises during periods of political change. Therefore, holding a long position in gold is of significant value.
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Goldman Sachs pointed out that holding a long position in gold has significant value, which can hedge against the inflation and geopolitical risks arising from the impact of tariffs after the U.S. election, the subordinate risk of the Federal Reserve, and the rising U.S. debt

Goldman Sachs: Buy some gold after the U.S. election