Facing risks to Federal Reserve independence and supply chain concentration concerns, Goldman Sachs highlights that commodities, particularly gold, are becoming crucial tools for hedging traditional asset risks.
On September 5th, Goldman Sachs released its latest commodity strategy research report stating that while commodity index returns are expected to be modest over the next 12 months under baseline scenarios, investors should consider incorporating commodities into their portfolios for diversification purposes. Gold was designated as their "highest-conviction long" recommendation.
The research report suggests that rising risks to U.S. institutional credibility and increasing commodity supply concentration create "tail risks" that could potentially drive commodity prices higher while stocks and bonds decline simultaneously. Goldman Sachs lists gold as their "most confident recommendation" in the commodities sector, maintaining target prices of $3,700 per ounce by end-2025 and $4,000 per ounce by mid-2026, noting that gold prices could potentially reach above $4,500 per ounce under extreme circumstances.
Goldman Sachs emphasizes in the report that three structural trends (De-risking energy, Defense spending, Dollar diversification) are systematically tightening commodity market supply and demand dynamics, particularly highlighting gold and copper as commodities where supply responds slowly to price changes.
**Commodities' Diversification Value Becomes Prominent**
The report states that since spring, markets have shifted from tariff uncertainty to tariff reality, which has helped stabilize economic activity indicators and reduced the probability of U.S. recession.
Nevertheless, Goldman Sachs believes that with current U.S. employment growth slowing, economic downside risks remain above historical averages. In this context, commodities' appeal as portfolio diversification tools has further strengthened. Goldman Sachs expects commodities' role in hedging inflation and extreme risks to become increasingly prominent.
Goldman Sachs' baseline scenario shows commodity indices delivering only modest positive returns over the next 12 months.
The firm maintains bullish views on gold (strong central bank buying), copper (electricity, infrastructure, and defense demand), and U.S. natural gas (LNG exports), but expects current oil market oversupply to intensify.
Goldman Sachs anticipates strong non-OPEC (excluding U.S.) oil supply growth will drive global market surplus of 1.8 million barrels per day in 2026, ultimately pushing Brent crude prices to a low of $50 per barrel by end-2026.
**Fed Independence Risks Boost Gold Outlook**
Goldman Sachs particularly emphasizes scenario risks from damaged Federal Reserve independence. If Fed independence becomes compromised, it could lead to rising inflation, declining long-term bond prices, falling stock prices, and weakening of the dollar's reserve currency status. In contrast, gold as a store of value does not depend on institutional trust.
The research report notes that if private investors diversify into gold more like central banks do, gold prices could potentially exceed the $4,500 per ounce tail-risk scenario, already well above the $4,000 mid-2026 baseline forecast.
Goldman Sachs estimates that if 1% of funds from privately held U.S. Treasury markets flow into gold, assuming other conditions remain equal, gold prices would rise to nearly $5,000 per ounce. Therefore, gold remains the firm's most confident long recommendation in the commodities sector.
**Commodity Supply Concentration Risks Intensify**
Increasing commodity supply concentration poses another major risk.
Goldman Sachs states that key commodity supply concentration has risen, with major production areas located in geopolitical or trade dispute hotspots (such as the Middle East, Russia, and U.S.-China regions). Under this configuration, "resource weaponization" tools like export restrictions are frequently used, leading to frequent supply disruptions, intensified price volatility, and rising imported inflation.
The report indicates that competition among world powers for key resources has intensified supply disruption and price volatility risks. Goldman Sachs cites examples including the 2022 Russia-Europe natural gas crisis and capacity constraints in the Red Sea and Panama Canal to illustrate supply chain vulnerabilities' impact on commodity prices.
Additionally, Goldman Sachs notes that OPEC+'s spare capacity is declining, making oil prices more susceptible to sharp increases once crude supply is disrupted.
**Structural "3D Trends" Support Medium to Long-term Commodity Bull Market**
Goldman Sachs emphasizes that three structural trends (De-risking energy, Defense spending, Dollar diversification) are systematically tightening commodity market supply and demand.
**1. Energy De-risking:** Global energy security policies are driving grid investment waves, significantly boosting copper demand. Goldman Sachs forecasts that grid-related investments will contribute 60% of global copper demand growth through 2030, with copper prices potentially reaching $10,750 per ton in 2027.
**2. Increased Defense Spending:** European military expenditure as a percentage of GDP is expected to rise from 1.9% in 2024 to 2.7% in 2027. Related metal equipment spending will drive significant growth in demand for copper, nickel, steel, and other industrial metals, providing substantial support for metal prices.
**3. Central Bank "De-dollarization":** Since Western nations froze Russian dollar assets in 2022, global central bank gold purchases have surged five-fold, becoming the core driver of gold's 94% price increase since 2022. Asian emerging countries are expected to continue large-scale gold purchases for several more years, constituting long-term institutional buying support for gold.