Bonds Aren’t Protecting From Volatility. Goldman Sees 2 Alternatives.

Times are tough for the average 60/40 investor.

While a split between stocks and bonds once indicated a diversified portfolio that could handle a wide variety of external shocks, tariffs and economic uncertainty have made fixed income less of a hedge against volatility.

“Long-term US bonds have recently failed to protect against equity downside, both in early April as tariff escalation caused major concern about US economic governance and recession risk, but also last week when long-term US borrowing costs jumped on fiscal sustainability worries,” Goldman Sachs analysts wrote on Wednesday.

The bank said that this isn’t altogether a new phenomenon: Equities and bond markets have fallen in tandem in the past, especially during inflationary or commodity shocks.

But for better protection, Goldman suggested two alternative assets for the long-term investor: gold and oil.

“The key reason is that gold and oil are critical hedges against the two major inflation shocks that can hit equity-bond portfolio returns. Gold hedges against losses in central bank and fiscal credibility, while oil often protects against negative supply shocks,” Goldman wrote.

Adding both gold and enhanced oil futures can bring down average annual volatility in a 60/40 portfolio from 10% to under 7%, Goldman said.

Overweight, underweight

The analysts suggested an overweight position in the yellow metal for investors planning to hold the asset for over five years.

So far in 2025, bullion has surged 26.6%, breaking through a string of records. Much of that has to do with the policy concerns coming from Washington, DC, something Goldman doesn’t expect will reverse quickly. Fiscal sustainability, debt concerns, and White House threats against Federal Reserve independence are all bullish for gold.

“If these concerns intensify, private investors could drive gold prices well beyond our current forecast of $3,700/toz by year-end and $4,000/toz by mid-2026,” the analysts wrote.

Meanwhile, analysts expect global de-dollarization to continue, which would mean foreign central banks keep piling up their gold reserves as they diversify away from the greenback. This has been happening in earnest since 2023, when fresh doubts about the dollar spurred nations to search for alternatives.

Investors should hold positive but underweight exposure to oil, Goldman wrote — though it can protect against supply shocks, high capacity reduces the risk of a shortage in 2025 and 2026.