Gold the best hedge against inflation and geopolitical risk, price will rise 16% to $2,700 by year-end – Goldman Research(Kitco News) – Commodities have a proven track record as a hedge against inflation, and gold may be the ideal investment given the likely post-election policies in the U.S., according to a new report from Goldman Sachs Research.
“Investors are alert to US inflation risks as corporate earnings exceed expectations, the US persistently runs large budget deficits, and because of the opportunity for inflationary policies following the presidential election in November,” Goldman Sachs analysts wrote in a post published Wednesday. “Commodities have demonstrated strong resilience in the face of inflation and have been a critical hedge for bonds and equities when prices and wages are climbing.”
The report’s authors, head of oil research Daan Struyven and analyst Lina Thomas, found that “[a] 1 percentage point surprise increase in US inflation has, on average, led to a real (inflation adjusted) return gain of 7 percentage points for commodities, while that same trigger caused stocks and bonds to decline 3 and 4 percentage points, respectively.”
The Goldman Sachs Research team found that “commodities provide a direct hedge against negative commodity supply shocks, which tend to depress bond and stock returns as interest rates rise, as well as providing a hedge against lower stock returns as rising prices cause GDP growth to slow,” they said. “Commodities also tend to rally when inflation is boosted by economic growth, and they can provide wealth preservation when central bank credibility declines.”
The Goldman researchers examined five of the most inflationary periods over the past half century: “the oil embargo of the early 1970s, the Iranian Revolution later that decade, China’s economic boom in 2005, its late-cycle boom in 2007-2008, and the post pandemic recovery that began in 2021,” and noted that each period was marked by supply, demand, and/or growth shocks.
“Despite the different make-up in inflation drivers, commodities outperformed equities and bonds across all five episodes,” Struyven and Thomas wrote. And the results were the same with inflation surprises exceeding one percent...............
https://www.kitco.com/news/article/2024-06-27/gold-best-hedge-against-inflation-and-geopolitical-risk-price-will-rise-16
