After soaring over 60% in 2025 and marking its largest annual gain since 1979, gold (XAUUSD.CFD) has continued its strong momentum in 2026, with spot prices rising nearly 7% cumulatively to break through the $4,600 per ounce milestone, as investors continue to flock to this traditional safe-haven asset. However, just as market sentiment runs high, Goldman Sachs has issued a warning, suggesting that investors rushing into gold for safety may be making a significant mistake. The bank’s investment strategy team does not favor gold as a diversification tool for investment portfolios.
In its 2026 outlook report, the investment strategy team of Goldman Sachs Wealth Management pointed out that gold has historically experienced deep and prolonged drawdowns, with a maximum drawdown reaching as high as 70%. By contrasting it with the U.S. bond market, the bank emphasized that fixed-income assets are traditionally viewed as portfolio buffers during turbulent times, while gold’s performance is relatively unstable. Brett Nelson, Head of Tactical Asset Allocation in Goldman Sachs’ investment strategy team, further explained that, based on historical data, gold’s volatility is higher than that of U.S. stocks, and its drawdowns are much larger. Moreover, over the past 20-year rolling periods, gold effectively hedged against inflation only about half the time, meaning it generated real returns in only half of those periods. In contrast, within the same timeframe, U.S. stocks consistently outperformed inflation.
Despite Goldman Sachs’ cautious view, market fund flows indicate strong bullish sentiment. Data shows that investors recently poured substantial capital into the popular gold exchange-traded fund SPDR Gold Shares, with a single-day inflow of $950 million, reversing the fund’s net outflows in 2026 and turning the year-to-date position to a net subscription of $118 million. This ETF gained nearly 64% in 2025, recording its largest annual increase since its launch in 2004, far surpassing the previous record of over 30% set in 2007. Contrary to Goldman Sachs’ pessimistic tone, many institutions remain optimistic about gold’s prospects. For example, the Wells Fargo Investment Institute expects gold prices to rise further in 2026, partly due to heightened geopolitical tensions and active gold purchases by global central banks. The institute believes that the anticipated interest rate cuts by the Federal Reserve and a stable dollar environment will support gold’s strong performance in 2026, though the pace may be slower than in 2025.
On the other hand, Goldman Sachs explicitly recommends an overweight position in U.S. equities in its 2026 outlook report. Nelson stated that unless one is highly confident of an imminent economic recession, it is difficult to underweight U.S. stocks, as the economy ultimately supports corporate earnings, and the S&P 500 follows earnings trends. The bank noted that widespread investor concerns about an economic recession, excessively high stock valuations, and the notion that AI spending is the only driver supporting the economy are exaggerated. Goldman Sachs’ investment strategy team has lowered the probability of a recession to 25%, down from last year’s forecast of approximately 35%. Its base case is that the S&P 500 will continue to benefit from economic expansion and strong corporate earnings growth. Sharmin Mossavar-Rahmani, Chief Investment Officer of the Investment Strategy Group, emphasized that the U.S. remains the preferred destination for global investors. Many popular narratives overlook the real drivers of growth and returns, and she explicitly refuted claims that “the U.S. is in decline.”
