Gold is one of the 'least effective' inflation hedges, according to Goldman Sachs. Here are 3 investments that actually protect your portfolio.
- Gold is a popular inflation hedge among investors, but it’s not actually effective, Goldman says.
- Similarly, commodities and bitcoin don’t provide protection against inflation either.
- The bank shares 3 investments that will actually help combat rising prices.
After a stellar year of 27% returns, it may be tempting to see gold as an investing cheat code. On top of delivering market-beating price appreciation, the yellow metal has long been regarded as a tangible storer of value and inflation hedge. What more could you ask for out of an investment?
However, the widespread belief that gold is a useful hedge against inflation is actually completely wrong, according to Goldman Sachs’ wealth management arm.
“The idea that gold is good inflation hedge is just not correct,” Sharmin Mossavar-Rahmani, head of the Investment Strategy Group and chief investment officer of Wealth Management, said when discussing the team’s 2025 outlook.
This view of gold runs contrary to that of many portfolio managers and banks, but for the skeptics, Goldman Sachs points to gold’s historic performance.
Gold beat the S&P 500 by 2% in 2024. But if you take a step back, the returns don’t look as promising. Goldman Sachs points out that the 2024 year end price of gold, at $2,625 per ounce, reflects only a 3.6% average annual increase from its nominal price in 1980. Within that same time period, the S&P 500 has returned 11.7% annualized in nominal terms.
Other commodities — such as oil, other metals, and even livestock — also have a reputation for being a hedge against rapidly rising prices and wages. But this, too, is a mistaken belief, according to Goldman Sachs.
As seen in the chart below, the total returns for oil since 2010 have been negative.
Goldman Sachs
Additionally, the commodity market is subject to high variability among its different subsectors. Areas like agriculture and energy performed poorly, dragging the overall sector down. For investors looking to beat inflation, Goldman Sachs doesn’t believe it’s a good idea to put your money on commodities.
Goldman Sachs
“Commodities and gold are the two least effective inflation hedges,” Goldman Sachs wrote in its 2025 outlook.
What about bitcoin? Some Wall Street giants like BlackRock see a case for using bitcoin to hedge against rising deficits and inflation.
Don’t even think about it, Mossavar-Rahmani says.
“It’s not an investable asset,” she said. “It’s a gambling asset.”
Bitcoin has no source of cash flow, and its performance isn’t tied to overall economic growth like that of stocks. That’s not to mention that the cryptocurrency’s price is extremely volatile.
“The history of bitcoin is limited, so we have no evidence that cryptocurrencies are a reliable inflation or deflation hedge that will store value in an inflationary or deflationary environment,” the bank said in its 2025 outlook.
That doesn’t mean investors can’t buy or trade it, but Goldman Sachs doesn’t believe bitcoin should be used by investors to protect against inflation, or held as a long-term asset.
3 inflation-resistant trades
If gold, commodities, and bitcoin won’t protect your portfolio from inflation, what will?
For starters, the best answer is also one of the simplest: US equities, which investors can get exposure to through owning the S&P 500. US stocks have a perfect track record of delivering returns in excess of inflation historically, as seen in the chart below.
Goldman Sachs
The US market in particular has more large, high-quality companies with robust earnings growth than international markets, according to the bank.
“We do think that the earnings advantage that the US has will continue,” Mossavar-Rahmani said.
Real estate is another inflation hedge, as property values tend to rise alongside inflation. Both residential and commercial real estate offer capital appreciation opportunities. In an inflationary environment, landlords have the pricing power to raise rents. And while rising labor and materials costs create an unfavorable, supply-constrained real estate market, investors benefit from the value of their real estate rising alongside demand, according to the asset manager Nuveen.
Lastly, Goldman Sachs points to intermediate Treasurys as another asset that performs well in the face of inflation. These government bonds mature between two to 10 years.
Bond yields have been creeping up since the start of 2025, fueled by a hot December jobs report and increased worries about inflation. But yields should start to come down in 2025, Goldman Sachs predicts, meaning their value will increase — to the tune of a 6.5% return, the bank said. When a bond’s price rises, its yield falls.